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Author: 


International  Acceptance 

Bank,  New  York 

Title: 

Acceptance  financing  and 
the  international... 

Place: 

New  YOrk 

Date: 

[1 923] 


RESTRICTIONS  ON  USE: 


MASTER   NEGATIVE   # 


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Copyright,  1923,  by 
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1" 


Introduction 

DURING  recent  years  much  has  been  written  on 
the  subject  of  foreign  financing  in  general,  and 
of  the  use  of  the  acceptance  in  particular.  There 
have  been  published  by  the  American  Acceptance 
Council  and  by  various  banks  a  considerable  num- 
ber of  articles  and  pamphlets  dealing  with  various 
phases  of  the  matter ;  and  several  admirable  com- 
pilations have  been  made  of  laws,  regulations,  and 
customs  governing  the  creation  of  acceptances  by 
American  banks.  It  is  not  the  purpose  of  this 
booklet  to  provide  a  guide  for  the  initiated;  it  is 
not  in  any  sense  intended  to  be  a  technical  trea- 
tise. For  this  reason  it  contains  no  appendix  in 
which  may  be  found  the  usual  excerpts  from  sun- 
dry laws  and  regulations.  Its  object  is  rather  to 
present  the  problems  of  foreign  trade  financing  in 
such  a  way  that  the  lay  mind  will  see  them,  not  as 
thorny  theorems  of  academic  discussion,  but  as 
everyday  matters,  which  they  really  are. 

In  a  sense  the  chapters  which  follow  are  an 
attempt  also  to  answer,  cumulatively  and  generic- 
ally,  some  of  the  vast  number  of  specific  questions, 
which  are  constantly  presenting  themselves  in  the 
daily  course  of  business.  Furthermore,  it  is  our 
aim  to  demonstrate  the  far-reaching  applicability 
of  the  use  of  acceptance  financing,  which,  though 
old  in  Europe,  is  still  in  its  infancy  here.  And 
finally, — to  confess  frankly  our  ulterior  motive, — 
it  is  our  hope  that  the  ensuing  pages  may  give  rise 
to  the  thought  on  the  part  of  the  reader  that  there 
may  be  some  way  in  which  the  service  of  the  In- 
ternational Acceptance  Bank  can  meet  his  partic- 
ular need. 


i. 


The  following  list  of  chapter  headings  will  serve 
to  show  the  order  in  which  the  different  subjects 
will  briefly  be  touched  upon.  Part  One  contains  a 
cursory  sketch  of  the  origin  and  development  of 
the  discount  market  in  America.  Part  Two  sets 
forth  the  different  varieties  of  acceptance  financ- 
ing, and  attempts  to  show  how  they  are  adapted 
to  the  needs  of  some  of  our  major  industries. 
Part  Three  is  concerned  with  the  relationship 
between  customer  and  bank,  the  analysis  of  risk, 
and  a  few  technical  features.  And'  finally,  Part 
Four  is  devoted  to  a  short  statement  of  the  facil- 
ities offered  by  the  International  Acceptance  Bank. 


JAMES  P.  WARBURG 
Vice-President 


New  York  City 
Jan.  15, 1923 


411 


jA  - 


J 


i 


CONTENTS 


PART    ONE 

The  Acceptance  in  the  United  States 

chapter  page 

One The  Origin  of  the  Acceptance 9 

Two    The  American  Credit  Structure. . .   12 

Three   The  Acceptance  as  an  Investment . .  17 

PART    TWO 

Variols  Forms  and  Uses  of  Acceptance  Financing 

Four Import  Credits 23 

Five    Export  Acceptance  Credits 28 

Six    Domestic  Acceptance  Credits 32 

Seven  Acceptances  to  Create  Dollar 

Exchange 35 

Eight   Grain  and  Foodstuffs 37 

Nine  The  Textile  Raw  Materials 40 

Ten Hides  and  Skins 44 

Eleven    Other  Raw  Materials  and  Manufac- 
tured Goods 46 


PART    THREE 

The  Relation  of  the  Customer  to  the  Bank 

Twelve Becoming  Acquainted  with  the 

Customer 51 

Thirteen  . .  .The  Analysis  of  a  Customer's 

Business 54 

Fourteen    .  .A  Few  Technical  Pitfalls 58 


PART    FOUR 

The  International  Acceptance  Bank,  Inc. 

Fifteen The  Organization  of  the  I.  A.  B 65 

Sixteen Particular  Facilities  for  Domestic 

Clients 69 

Seventeen .  .Services  to  Foreign  Customers 73 


f  f  • 


CHAPTER    ONE 

The  Origin  of  the  Acceptance 

THE  story  of  the  gradual  erection  of  the  pres- 
ent-day credit  structure  upon  the  original  bed- 
rock of  barter  has  been  told  so  often  and  so  fully, 
that  we  need  not  concern  ourselves  with  it  here. 
Every  one,  no  matter  how  remotely  he  is  con- 
nected with  business,  is  familiar  at  least  in  a  gen- 
eral way,  with  the  history  of  the  use  of  the  pre- 
cious metals  as  a  medium  of  exchange,  and  the 
subsequent  evolution  of  credit,  based  upon  the 
confidence  of  one  man  in  the  ability  of  another  to 
pay  in  terms  of  the  accepted  medium.  Every  one 
knows  that  the  establishment  of  general  confi- 
dence in  the  ability  of  a  government  to  redeem 
the  accepted  medium  in  gold  or  silver, — whatever 
its  standard  may  be, — is  the  corner-stone  of  the 
entire  credit  structure.  The  acceptance  of  token 
money  in  lieu  of  actual  metal  rests  on  this  con- 
fidence, and  so  does  in  turn  the  substitution  for 
token  money  of  checks  and  promises  to  pay, 
whether  long  or  short,  whether  corporate  or 
individual. 

What  we  are  here  primarily  concerned  with  is 
the  use  of  one  particular  kind  of  a  promise  to  pay, 
namely,  the  banker's  acceptance;  but,  inasmuch 
as  this  instrument  developed  out  of  what  is  known 
as  the  trade  acceptance,  we  must  first  briefly 
consider  the  essential  characteristics  of  the  lat- 
ter. The  trade  acceptance  is  the  obligation  of 
a  purchaser  to  a  seller  for  a  specific  sum  owed 
for  certain  goods  or  services,  and  this  obliga- 
tion is  expressed  in  the  form  of  a  draft  drawn 
by  the  seller  on  the  purchaser  and  accepted  by  the 
latter  for  payment  at  its  maturity.  The  funda- 
mental feature  is  not  simply  that  the  acceptance 

9 


The  Trade 
Acceptance 


is  two-name  paper;  a  note  of  hand  bearing  an 
accommodation  endorsement  is  two-name  paper, 
but  it  is  a  vastly  different  instrument  from  the 
acceptance.  The  endorsed  note  is  simply  the  prom- 
ise of  one  man  to  pay,  fortified  by  the  guarantee 
of  another;  the  trade  acceptance  represents  an 
account  receivable  for  merchandise  or  service  ren- 
dered, in  negotiable  form. 

If  Jones   sells  Smith  a  cargo  of  wheat,   for 
$50,000.  payable  in  thirty  days,  and  carries  this 
transaction  as  an  open  book  account,  he  thereby 
Open  ties  up  his  $50,000.  for  one  month.  At  the  end  of 

Account        that  time  Smith  may  argue  that  the  wheat  was 
•^"'^  bad,  or  not  the  kind  he  ordered,  and  refuse  to  pay. 

In  order  to  carry  on  his  business  pending  the  set- 
tlement of  this  dispute,  Jones  may  have  to  borrow- 
some  money,  and,  not  having  sufficient  credit  with 
the  bank,  he  may  induce  some  friend  of  means  to 
endorse  his  note  for  him. 

If,  on  the  other  hand,  Jones  ships  his  wheat  to 

Smith,  and  draws  a  thirty  days  draft  on  him  for 

$50,000,  with  instructions  to  his  bank  to  release 

Versus  the  wheat  to  Smith  only  after  the  latter  has  signed 

Trade  his  name  across  the  face  of  the  draft,  all  this 

Acceptance    trouble  would  be  avoided.   In  the  first  place,  the 

seller  would  immediately  have  an  instrument  upon 

which  he  could  realize  by  selling  it  to  his  bank  or 

in  the  market;  and  second,  the  purchaser  would 

have  to  pay  at  maturity  and  claim  his  adjustment 

afterwards,  unless  he  desired  to  become  involved 

in  legal  proceedings  for  default. 

The  exact  origin  of  the  trade  acceptance  is  not 
known,  but  obviously  it  was  nothing  more  than 
a  common-sense  development  out  of  the  ordinary 
requirements  of  business.  Similarly,  the  evolution 
Oriffin  from  the  trade  acceptance,  where  seller  draws  on 

purchaser,  to  the  banker's  acceptance,  where  the 
purchaser  provides  the  seller  with  a  bank  upon 
which  to  draw,  is  nothing  more  than  a  further  de- 
velopment of  the  original  thought.  For,  to  revert 
to  our  friends,  Smith  and  Jones,  if  Jones  knew 

10 


. 


Evolution 
of  the  Bank 


that  Smith  also  lacked  capital,  and  that  the  bank 
would  not  lend  on  Smith's  acceptance  of  his  draft, 
he  would  refuse  to  sell  Smith,  unless  the  latter 
could  provide  other  means  of  payment. 

It  is  then  not  hard  to  conceive  of  Smith's  going 
to  his  own  bank  and  possibly  prevailing  upon  it, 
because  it  had  known  him  for  a  long  time  as 
an  honest  merchant,  to  lend  its  credit  to  the  Acceptance 
transaction.  If  the  bank  agreed  to  accept  Jones* 
draft  on  behalf  of  Smith,  Jones  would  be  satisfied. 
The  bank  might  then  protect  itself  by  holding  the 
wheat  until  Smith  could  sell  it  and  pay  in  the 
proceeds  some  time  during  the  thirty  day  period, 
and  of  course  it  would  charge  Smith  for  the  accom- 
modation. Thus  we  can  easily  imagine  the  evolu- 
tion of  the  first  banker's  acceptance. 

Various  circumstances  have  made  for  different 
developments  in  the  use  of  the  bank  and  trade 


acceptance  in  various  countries.  In  England  the 
bank  acceptance  has  reached  its  highest  develop- 
ment as  a  means  of  financing  foreign  business, 
while  the  trade  acceptance  has  remained  in  vogue 
chiefly  for  domestic  transactions.  In  various  Con- 
tinental countries  both  trade  and  bank  acceptances 
are  employed,  the  extensive  use  of  the  trade  ac- 
ceptance being  particularly  noteworthy  in  France. 
In  Canada,  likewise,  the  trade  acceptance  has  en- 
tirely supplanted  the  single  name  note,  and  bank 
acceptances  are  rarely  used,  except  for  foreign 
business.  Both  forms  are  used  in  Germany,  where 
the  bank  acceptance  plays  a  particularly  impor- 
tant part  in  the  financing  of  the  industries. 

The  development  of  the  credit  structure  in  the 
various  countries  of  Europe  is  an  engrossing  sub- 
ject, but  it  is  unfortunately  one  which  cannot  even 
superficially  be  touched  upon  in  a  few  paragraphs. 
Nor  is  it  possible  adequately  to  do  what  we  shall 
nevertheless  attempt  in  the  next  chapter,  namely 
to  present  a  condensed  picture  of  what  has  hap- 
pened and  is  happening  in  our  own  country. 


11 


Use  in  Other 
Countries 


CHAPTER    TWO 

The  American  Credit  Structure 

ORIGINALLY,  when  this  country  was  a  British 
colony,  and  later,  during  the  first  half  cen- 

^ccepu^ncf  *^^  ^^  ^*®  independence,  the  credit  structure  was 
^^^^  closely  modelled  on  that  of  England.  The  trade 
acceptance  was  in  common  use  as  the  means  by 
which  the  interchange  of  goods  was  financed. 
Such  bills  of  exchange  were  bought  by  the  banks, 
and  the  latter  were  also  in  the  habit  of  extending 
accommodation  against  the  hypothecation  of  mer- 
chandise. 
During,  and  immediately  after  the  Civil  War, 

Civil  War  the  entire  economic  life  of  the  country  became 
completely  demoralized.  Even  in  the  victorious 
North  the  basis  of  the  credit  structure, — ^mutual 
confidence  in  the  ability  of  the  other  man  to  meet 
his  obligations, — ^was  badly  damaged.  In  the 
South,  not  only  was  the  entire  structure  destroyed, 
but  its  very  foundations  were  washed  away ;  for, 
not  only  had  confidence  been  utterly  shaken,  but 
money  as  a  medium  of  exchange  had  temporarily 
disappeared. 

Th€  Premium       ^^  ^s  only  natural  that  under  such  circumstances 
on  Cash  of  complete  disintegration  a  high  premium  should 

be  paid  by  the  seller  of  goods  for  the  immediate 
procurance  of  cash.  This  situation  brought  about 
the  practice  of  giving  cash  discounts  on  sales, 
which  has  continued  down  to  the  present  day,  long 
after  the  need  for  it  has  passed.  It  is  obvious  that 
the  offer  of  a  10%  discount  for  cash  as  against 
payment  on  the  customary  trade  terms  of  thirty, 
sixty,  or  ninety  days,  leads  to  a  system  of  com- 
mercial financing  in  which  the  trade  acceptance 
plays  no  part.  A  further  consequence  of  this  de- 

12 


velopment  is  that  the  seller,  upon  whom  falls  the 
burden  of  financing  the  transaction,  will  have  to 
find  some  other  way  of  borrowing  funds  than  by 
sale  of  his  accounts  receivable  in  negotiable  form, 
which  in  turn  will  lead  to  the  practice  of  borrow- 
ing on  single  name  notes. 

Under  the  National  Bank  Act  of  1864,  banks 
holding  a  national  charter  were  given  no  power 
to  accept,  and  furthermore  these  banks  were  by  ^^J^t 
the  Comptroller's  ofiice  strictly  prohibited  from 
allowing  overdrafts.  This  piece  of  legislation, 
together  with  the  post-war  situation  above-out- 
lined, the  total  lack  of  a  discount  market  controlled 
by  a  rediscounting  central  bank,  and  the  decentral- 
ization of  note  issues  and  reserves,  led,  more  than 
anything  else,  to  the  development  of  the  American 
credit  structure,  along  lines  differing  so  radically 
from  European  custom. 

In  Europe  it  had  become  an  old-established 
principle,  that  if  a  man  was  entitled  to  borrow  on 
his  single  name,  he  did  so  by  using  a  blank  finance  ^"^^^^J^ 
credit,  or  by  overdrawing  his  account  with  his 
bank  up  to  a  certain  limited  amount.  In  no  case 
was  such  single  name  borrowing  done  in  the  open 
market,  the  use  of  the  latter  being  entirely  con- 
fined to  bank  or  trade  acceptances. 

Here,  on  the  other  hand,  by  reason  of  the  fact 
that  trade  acceptances  no  longer  commanded  con- 
fidence, and  that  bank  acceptances  were  by  law  American 
impossible,  the  development  led  to  the  exact  in-  Single-name 
verse  of  European  practice.  The  cash  discount 
open  account  system  made  the  accounts  receivable 
of  the  seller  illiquid  and  necessitated  his  borrowing 
from  his  bank,  either  on  his  straight  name,  or  by 
giving  security  in  one  form  or  another.  As  this 
form  of  financing  developed  over  a  period  of  years, 
it  became  apparent  that  the  stronger  corporations 
could  sell  their  single  name  unsecured  obligations 
for  short  periods  to  banks  other  than  their  own, 
and  this  gradually  led  to  the  distribution  of  such 
paper  through  so-called  commercial  paper  brokers 

13 


Money  Rates 


The  Federal 
Reserve  Act 


to  banks  all  over  the  country,  and  ultimately  to 
other  investors  as  well. 

As  an  obvious  corollary  of  this  condition,  the 
price  of  money  could  never  be  governed  here  as 
it  was  in  Europe  by  a  free  nation-wide  interplay 
of  demand  and  supply;  whereas  in  European 
countries  money  rates  are  determined  by  an  open 
discount  market  protected  against  over-violent 
fluctuations  by  the  operations  of  the  Central  Bank, 
a  natural  regulation  of  this  sort  was  precluded  in 
this  country.  In  the  nrst  place  there  was  no  dis- 
count market,  and  no  central  reserve  system  pre- 
sided over  by  a  central  note-issuing  bank;  in  the 
second  place,  by  the  policy  of  jealously  guarding 
individual  state  rights,  the  country  was  broken 
up  into  a  large  number  of  small  units,  with  a  lack 
of  uniform  law  and  regulation;  and  finally,  since 
branch  banking  was  not  permitted,  we  soon  had 
some  30,000  individual  banks,  instead  of,  as  in 
Europe,  a  few  large  institutions  with  branches 
scattered  throughout  the  country.  The  inevitable 
result  of  these  conditions  was  that  the  focal  point 
of  the  American  money  market  centered  in  New 
York,  as  the  only  available  meeting-ground  for 
the  demand  of  one  section  and  the  idle  funds  of 
another,  and  that  consequently  the  price  of  money 
was  governed  very  largely  by  the  rate  at  which 
loans  could  be  placed  in  the  New  York  market 
against  stock  exchange  collateral. 

When  the  Federal  Reserve  System  was  estab- 
lished in  1914  a  modified  central  banking  system 
was  provided,  and,  by  centralizing  reserves  and 
giving  the  banks  of  the  country  the  power  to 
accept,  the  first  step  was  taken  towards  the  crea- 
tion of  a  discount  market.  As  is  always  the  case 
when  new  powers  are  given  to  any  group  of  indi- 
viduals, a  grave  danger  was  foreseen  in  the  possi- 
ble abuse  of  the  newly  granted  privilege.  For  this 
reason  the  Federal  Reserve  Act  imposed  certain 
rigid  limitations  upon  the  acceptance  power,  and 
vested  in  the  Federal  Reserve  Board  the  function 


14 


of  determining  from  time  to  time  by  the  issuance 
of  rulings  and  regulations,  in  what  manner  the  ac- 
ceptance privilege  was  to  be  exercised. 

When  the  Act  first  went  into  effect.  National 
Banks  were  given  permission  to  accept  drafts  of 
not  more  than  ninety  days  time,  drawn  upon  them 
for  the  purpose  of  financing  importations  and 
exportations  of  goods.  All  National  Banks  were 
compelled  by  the  Act  to  join  the  Federal  Reserve 
System,  and  every  reasonable  inducement  was 
offered  to  State  Banks  and  Trust  Companies 
to  become  voluntary  members.  The  Federal  Re- 
serve Banks  were  originally  authorized  to  redis- 
count the  acceptances  of  member  banks,  when 
drawn  in  accordance  with  the  regulations,  but  the 
acceptances  of  non-member  banks  were  also  made 
eligible  for  rediscount,  when  properly  endorsed. 
A  general  limit  was  fixed  of  50%  of  a  member 
bank's  capital  and  surplus,  beyond  which  it  was 
not  permitted  to  have  acceptances  outstanding, 
except  where  upon  application  the  Federal  Reserve 
Board  approved  of  its  accepting  up  to  100%. 

Since  the  System  was  established  the  acceptance 
powers  of  member  banks  have  gradually  been  ex- 
panded, and  the  System  itself  has  been  enlarged 
by  the  fact  that  practically  every  important  bank 
in  the  country  has  now  become  a  member  bank. 
The  acceptance  powers  were  added  to,  both  by 
amendments  to  the  Act,  and  by  rulings  and  regu- 
lations of  the  Board. 

In  the  case  of  many  of  the  larger  banks  the 
limit  has  been  increased  from  50%  to  100%,  and 
provision  has  been  made  for  the  eligibility  of 
acceptances  created  by  certain  non-member  banks, 
corporations,  and  firms,  which  make  statements 
to  the  Federal  Reserve  Banks.  Inasmuch  as  the 
demand  for  acceptance  financing  cannot  be  fully 
met  by  banks  which  have  large  deposits,  and  are 
therefore  properly  prohibited  from  increasing 
their  liabilities  beyond  the  legally  proscribed 
limit,   there   is    a   need   for   special    acceptance 


The 

Acceptance 

Power 


Widening 
of  the 
Power 


15 


New  Forms 
Permitted 


The  PoUcy 
of  the 
Federal 
Reserve 
Board 


houses,  such  as  have  long  existed  in  London.  To 
fill  this  need  the  Act  was  amended  so  as  to  pro- 
vide for  special  organizations  which  have  no 
domestic  deposit  liabilities,  and  are  therefore  per- 
mitted  to  accept  up  to  an  amount  not  exceeding 
ten  times  their  capital  and  surplus.  The  Inter- 
national Acceptance  Bank,  Inc.,  is  a  special  cor- 
poration of  this  nature. 

Furthermore,  in  addition  to  widening  the  power, 
the  field  was  expanded.  Besides  financing  imports 
and  exports,  the  power  was  granted  to  finance 
domestic  shipments,  and  readily  marketable  staples 
m  warehouse,  pending  sale  or  distribution;  and 
later,  banks  were  permitted  upon  application  to 
accept  an  additional  50%  of  their  capital  and  sur- 
plus for  account  of  banks  or  bankers  in  certain 
countries,  "to  create  dollar  exchange."  All  these 
various  forms  of  acceptance  financing  will  be  taken 
up  in  subsequent  chapters. 

As  time  has  gone  on,  and  as  the  American 
banker  has  acquired  a  certain  amount  of  knowl- 
edge in  regard  to  the  creation  of  acceptances, 
the  Board  has  relaxed  more  and  more  the  strin- 
gency of  its  control  over  the  various  types  of 
operations.  It  has,  in  the  case  of  import  and  ex- 
port credits,  increased  the  maximum  length  of 
eligible  bills  from  three  to  six  months;  it  has 
permitted  greater  latitude  in  the  handling  of 
documents  and  the  release  of  security;  and,  in 
short,  it  has  given  every  indication  of  its  intention 
to  permit  custom  and  common  sense  at  least  par- 
tially to  supplant  closely  codified  regulations,  as 
soon  as  all  danger  of  abuse  arising  from  ignorance 
and  inexperience  has  been  eliminated. 


16 


CHAPTER    THREE 


The  Acceptance  as  an  Investment 

IN  regard  to  the  security  of  bank  acceptances  we 
cannot  do  better  than  to  quote  from  an  article 
published  some  time  ago  by  the  First  National 
Corporation : 

"From  the  point  of  view  of  security,  a  bank 
acceptance  is  analogous  to  a  certified  check,  in 
that  it  constitutes  a  primary  obligation  of  the 
accepting  bank  and  a  contingent  obligation  of  the 
drawer  and  of  any  endorsers  whose  names  may 
appear  upon  it.  Unless  issued  to  create  dollar  ex- 
change, in  which  case  the  drawer  must  be  a  bank 
or  banker,  it  is  always  based  on  a  commercial 
transaction,  supported  by  the  customer's  agree- 
ment with  the  bank  to  place  the  latter  in  funds 
in  advance  of  maturity,  and  often  by  his  pledge 
of  the  actual  goods  involved.  In  due  course  it  is 
liquidated  by  the  sale  of  goods  and  is,  therefore, 
essentially  self  liquidating.  But  the  holder  of  a 
bank  acceptance  is  not  dependent  upon  the  comple- 
tion of  the  commercial  transaction  for  the  collec- 
tion of  his  funds,  since  his  paper  is  the  direct,  un- 
conditional obligation  of  the  accepting  bank  to  pay. 
It  is  secured  by  the  bank's  entire  resources,  and 
must  be  honored,  even  though  the  taker  of  credit 
should  default  on  his  part  of  the  undertaking. 

The  security  of  principal  is  therefore  of  a  high 
order,)  and,  where  the  accepting  bank  is  well 
known,  the  question  of  safety  is  rarely  raised." 

A  great  advantage  of  bank  acceptances  is  that 
they  may  be  procured  to  meet  almost  the  exact 
requirements  of  any  maturity  up  to  six  months, 
and  that  furthermore,  should  it  be  desired  to  re- 
alize upon  the  investment  before  the  anticipated 

17 


Security 


Liquidity 


maturity,  bank  acceptances,  if  held  by  a  third 
party,  are  salable  in  the  open  market  at  a  moment's 
notice  without  the  holder's  endorsement;  and  if 
endorsed  by  a  member  bank  or  other  approved 
name  as  third  party,  they  are  bought  freely  by 
the  Federal  Reserve  Banks.  In  this  way  they 
combine  adaptability  to  various  needs  with  the 
highest  degree  of  liquidity. 

All  National  Banks  are  permitted  to  invest  in 
bank  acceptances  without  regard  to  the  10%  limi- 
tation of  loans  to  one  borrower,  which  is  imposed 
by  the  National  Bank  Act  and  which  applies  to 
purchases  of  single-name  commercial  paper.  More- 
over, State  Banks  and  Trust  Companies,  as  well 
as  Savings  Banks  and  Insurance  Companies,  are 
being  given  the  right  to  buy  such  paper  in  an 
increasing  number  of  States,  and  during  recent 
years  the  acceptance  has  become  extremely  popu- 
lar with  these  and  other  large  corporations,  as  a 
means  of  affording  liquidity,  security,  and  at 
the  same  time,  a  good  yield  for  their  short  time 
funds. 


What    Is    Behind    The    Acceptance 

of  the 
International  Acceptance  Bank,  Inc. 


Condensed  Statement  December  30,  1922 


RESOURCES 

Stockholders'  Uncalled  Liability. .  .$5,000,000.00 

Cash  on  Hand  and  Due  from  Banks $  7,154,615.18 

Acceptances  of  Other  Banks 2,115,254.74 

U.  S.  Government  Securities 10,885,686.10 

Loans  and  Discounts. 2,699,975.05 

Other  Bonds,  Securities,  etc 3,428,553.62 

Customers'  Liability,  Acceptances 

(less  Anticipations  $1,788,354.48)     27,045,621.51 

Customers'  Liability  under  Letters  of  Credit. . .     5,611,383.93 
Total $58,941,090.13 

LIABILITIES 

Subscribed  Capital  and  Surplus.  .$15,250,000.00 

Capital  Paid  In $10,250,000.00 

Undivided  Profits 969,519.76 

Reserve  for  Taxes,  etc 202,067.15 

Due  to  Banks  and  Customers 13,074,143.30 

Acceptances  Outstanding 28,833,975.99 

Letters  of  Credit 5,611,383.93 

Total $58,941,090.13 


18 


19 


PART    TWO 

Various  Forms  and  Uses  of 
Acceptance  Financing 

WE  have  just  seen  briefly  for  what  purposes 
the  American  banks  are  empowered  to  cre- 
ate acceptances.  We  shall  now  take  up  in  turn 
each  of  the  different  forms  of  acceptance  financ- 
ing; that  is,  the  sundry  varieties  of  import,  ex- 
port, and  domestic  acceptance  credits,  as  well  as 
the  acceptance  to  create  dollar  exchange.  Having 
done  this,  we  shall  endeavor  to  show  how  these 
various  forms  apply  to  some  of  the  more  impor- 
tant general  lines  of  business. 


I  a 


■» 


\f 


k\ 


IWf 


CHAPTER    FOUR 

Import  Credits 

THE  sight  import  letter  of  credit  serves  the  pur- 
pose of  enabling  an  American  merchant  to  buy 
goods  deliverable  and  payable  in  the  United  States 
from  a  foreign  seller  to  whom  he  is  not  suffi- 
ciently well  known  so  that  the  seller  would  be 
willing  to  draw  on  him  direct.*  He  can  of  course 
only  obtain  such  accommodation  if  he  enjoys  the 
confidence  of  an  American  bank  to  such  an  extent 
that  it  is  willing  to  say  to  the  foreign  seller,  "I 
understand  that  Mr.  Jones  has  bought  certain 
goods  from  you.  At  his  request  I  hereby  assure 
you  that  if  you  will  draw  on  me  up  to  such  and 
such  an  amount  and  send  me  the  documents  cov- 
ering the  shipment,  I  will  pay  such  drafts  upon 
presentation,  provided  they  are  drawn  and  nego- 
tiated before  a  certain  date,  and  that  the  docu- 
ments comply  with  the  following  instructions." 

Having  this  assurance  from  the  American  bank, 
only  of  course  in  a  more  precise  form,  the  seller 
will  not  hesitate  to  prepare  his  goods,  obtain  the 
necessary  shipping  documents,  draw  his  drafts, 
and  take  the  drafts  and  documents,  together  with 
his  advice  from  the  American  bank,  to  his  own 
bank  for  negotiation.  This  foreign  bank  will  then 
verify  the  credit  and  make  sure  that  the  docu- 
ments are  those  called  for,  and  that  the  drafts  are 
properly  drawn.  If  everything  is  in  order  the  bank 
will  then  buy  the  drafts  at  the  prevailing  rate  for 
dollars,  giving  the  seller  the  equivalent  in  local 
currency ;  or,  if  it  so  happens  that  the  seller  desires 
to  have  dollars,  it  will  forward  the  drafts  for  col- 
lection and  deposit  to  the  seller's  credit  in  the  U.  S. 

•  Or  whose  credit  is  not  well  enough  established  to  enable  the  seller 
to  finance  himself  by  offering  a  bill  drawn  upon  him  (the  buyer). 

23 


Function 
of  the 
Import  L/C 


The  Seller's 
Negotiation 


So  much  for  the  seller.  As  to  the  American 
buyer,  he  has  obligated  himself  to  his  bank  in 
The  Buyer's  New  York  at  the  time  he  applied  for  the  credit,  to 
Arrangements  ^he  effect  that  he  will  place  it  in  funds  to  enable 
it  to  pay  the  drafts  when  they  are  presented ;  this 
he  does  as  soon  as  he  is  notified  by  the  bank.  He 
thereupon  receives  the  documents,  which  convey 
title  to  the  goods  he  has  purchased,  and  so  the 
transaction  is  completed.  All  the  Bank  has  done 
is  to  lend  the  merchant  the  use  of  its  credit,  and 
to  attend  to  the  documents.  For  this  service  it  is 
compensated  by  a  small  commission. 

The  transaction  outlined  above  is  an  ordinary 
sight  import  credit.  If  the  seller  is  willing  to 
Sight  and  grant  easier  terms  with  payment  after  the  goods 
Time  Credits  have  actually  had  time  to  arrive,  the  credit  would 
be  made  available  by  drafts  drawn  at  a  relatively 
longer  tenor  than  sight.  The  only  difference,  so 
far  as  the  seller  is  concerned,  would  be  that  when 
he  sells  his  drafts  he  would  receive  a  less  favor- 
able rate  of  exchange,  since  the  additional  interest 
would  be  figured  in  the  rate;  for  this  he  would 
make  allowance  in  his  price. 

The  negotiating  bank  would  forward  the  drafts 
and  documents  to  its  American  correspondent, 
with  instructions  to  release  the  documents  to  the 
accepting  bank  against  its  acceptance  of  the 
drafts.  It  would  further  instruct  its  correspondent 
either  to  hold  the  acceptances  subject  to  instruc- 
tions or  to  be  credited  in  account  at  maturity,  or, 
if  immediate  funds  were  desired,  to  discount  the 
acceptances  .and  credit  the  proceeds. 

The  problem  now  arises  as  to  what  the  im- 
porter's bank  is  to  do  with  the  documents,  against 
Custody  of  which  its  acceptance  has  been  given.  When  the 
the  Goods  arrangements  for  opening  the  credit  were  made, 
the  importer  undertook  that  he  would  place  the 
bank  in  funds  one,  two,  or  more  days  before  the 
maturity  of  its  acceptance,  according  to  the  terms 
of  the  agreement.  If  in  this  agreement  it  was 
stipulated  that  the  bank  should  remain  absolutely 

24 


/ 


I 


Trust 
Receipts 


secured  so  long  as  its  acceptance  was  outstanding, 
it  will  place  the  goods  in  a  warehouse  until  the 
importer  has  discharged  his  obligation,  at  which 
time  it  will  release  the  warehouse  receipts  and 
thus  conclude  the  transaction. 

If,  however,  the  merchant  has  sold  the  goods 
prior  to  their  arrival  and  desires  immediate  de- 
livery, the  bank,  if  it  is  convinced  of  the  actual 
necessity,  will  release  the  documents  under  a  trust 
receipt.  By  this  instrument  the  merchant  declares 
that  the  goods  are  the  property  of  the  bank  for 
which  he  holds  them  in  trust,  and  that  the  pro- 
ceeds of  their  sale  will  immediately  be  applied 
towards  liquidating  the  outstanding  acceptance.  If 
he  collects  from  his  customer  before  the  time  at 
which  he  has  agreed  to  pay  the  bank,  the  merchant 
will  receive  from  the  bank  an  interest  rebate 
amounting  to  approximately  what  the  bank  can 
obtain  from  investing  the  funds  during  the  re- 
maining period. 

It  may  so  happen  that  the  importer  will  desire 
to  obtain  the  goods  as  soon  as  they  arrive,  even 
though  they  have  not  been  sold,  as  is  often  the 
case  with  a  manufacturer  who  imports  his  raw 
material.  It  is  then  a  matter  for  the  bank  to  decide 
whether  the  circumstances  call  for  turning  over  the 
goods,  or  whether  it  will  release  only  if  it  receives 
other  security  in  substitution.  In  the  first  case  it 
will  release  under  trust  receipt ;  in  the  second,  it 
will  take  other  raw  material,  or  perhaps  finished 
goods,  stored  in  an  independent  warehouse ;  or  it 
will  accept  as  collateral  trade  acceptances,  as- 
signed accounts,  or  other  security. 

In  a  ninety  day  import  letter  of  credit  such  as 
this,  the  bank  has  once  more  lent  the  use  of  its 
name,  and  in  certain  cases,  as  we  have  seen,  has  Commission 
released  the  goods  to  the  importer  during  the 
period  that  its  acceptance  is  outstanding.  For  this 
service  the  importer  pays  a  commission  which 
varies  according  to  the  risk  and  is  determined  in  a 
similar  manner  as  an  insurance  premium.    The 

25 


Substitutions 


Other  Costs 


Re-finance 
Agreements 


I 

^ 


For  Sight 

Dollar 

Credits 


standing  of  the  customer,  the  character  of  the 
transaction  and  of  the  commodity,  the  countries 
and  the  length  of  time  involved,  all  figure  in  the 
question  of  what  the  charge  should  be. 

In  the  case  of  the  usual  import  letter  of  credit 
involving  the  acceptance  of  time  drafts,  the  im- 
porter pays  nothing  but  his  bank's  acceptance 
commission  and  cable  costs,  unless  he  desires  the 
credit  confirmed  to  the  beneficiary,  in  which  case 
an  additional  small  charge  is  incurred.  The  inter- 
est for  the  time  which  elapses  between  the  nego- 
tiation and  ultimate  payment  of  the  draft  is  de- 
frayed by  the  foreign  shipper,  being  as  we  have 
seen,  figured  by  the  negotiating  bank  in  the  rate 
it  applies  when  it  purchases  the  draft. 

There  are  some  cases  in  which  the  seller  is  will- 
ing to  ship  under  a  ninety  days  credit,  but  only  if 
the  cost  of  the  discount  is  borne  by  the  purchaser. 
In  such  an  instance  the  purchaser  will  ask  his  bank 
to  open  the  credit  in  the  usual  manner,  adding  that 
the  shipper  is  to  draw  for  invoice  amount  plus  dis- 
count at  whatever  rate  is  agreed  upon.  Or,  the 
shipper  may  include  ninety  days'  interest  in  his 
invoice  price. 

The  more  usual  procedure,  however,  in  circum- 
stances such  as  the  above,  is  for  the  importer  to 
bring  in  his  goods  under  a  sight  credit,  and  re- 
finance the  latter  by  a  ninety  days  acceptance. 
This  simply  means  that  he  arranges  with  his  bank 
to  open  a  sight  credit  in  the  usual  manner,  with 
the  additional  understanding  that,  instead  of  hav- 
ing to  pay  the  bank  with  his  own  money  when  the 
drafts  are  presented,  he  shall  be  permitted  to  draw 
on  the  bank  at  ninety  days  sight  and  ask  it  to 
accept,  so  that  he  may  sell  the  acceptances  and  use 
the  proceeds  to  meet  the  sight  drafts.  The  im- 
porter will  of  course  bind  himself  to  place  the  bank 
in  funds  before  the  maturity  of  its  acceptance, 
and  will  either  receive  the  goods  in  trust  or  ware- 
house them  for  the  bank's  account,  as  in  the 
ordinary  import  letter  of  credit.  For  this  two-fold 

26 


1 


service  the  bank  will  charge  its  usual  sight  credit 
commission,  plus  its  acceptance  commission  for 
ninety  days.  In  this  case  the  seller  pays  the  in- 
terest for  the  time  the  sight  draft  is  on  the  water, 
while  the  importer  bears  the  cost  of  discounting 
the  ninety  day  bill. 

There  is  one  other  form  of  import  acceptance 
credit  which  is  not  very  frequently  used,  where 
the  importer  desires  to  make  payment  for  goods 
in  foreign  currencies  and  finances  his  cash  remit- 
tance by  drawing  a  long  dated  dollar  draft  on  his 
domestic  bank.  In  a  case  of  this  sort  the  bank  will 
agree  to  accept  the  importer's  drafts  only  upon 
condition  that  during  the  life  of  the  acceptances 
the  shipping  documents  will  pass  through  its 
hands,  and  that  it  will  be  put  in  funds  at  maturity, 
or  before,  whenever  the  underlying  transaction 
has  been  liquidated. 

It  is  also  possible  under  the  most  recent  regula- 
tions of  the  Federal  Reserve  Board,  for  a  bank  to 
accept  such  long  drafts,  with  nothing  more  than 
a  letter  from  the  importer  stating  that  the  pro- 
ceeds of  the  sale  of  the  acceptance  will  be  used  for 
financing  an  importation.  This,  however,  can  only 
be  done  provided  the  importer  furnishes  definite 
evidence  that  the  importation  has  been  contracted 
for  and  will  be  liquidated  before  the  maturity  of 
the  acceptance. 

This  recent  regulation  brings  us  very  much 
nearer  to  the  condition  which  prevails  in  London, 
where  an  acceptance  bank  in  lending  the  use  of 
its  name  is  guided  solely  by  its  own  judgment 
and  the  composite  judgment  of  the  market,  as 
expressed  in  its  willingness  or  unwillingness  to 
buy  the  acceptances  which  it  creates. 


27 


For  Foreign 

Currency 

Payments 


Clean 

Import 

Credits 


Exporting 
Under  a 
Bank  Credit 


I 


Direct 
Drawing 


Sight 


D/P 


D/A 


Open 
Invoice 


CHAPTER    FIVE 

Export  Acceptance  Credits 

WE  have  just  discussed  the  manner  in  which  an 
American  importer  is  assisted  by  his  bank  to 
purchase  from  a  foreign  seller,  to  whom  he  is  not 
sufficiently  well  known  to  be  able  to  obtain  direct 
shipments.  The  reverse  of  this  picture  is  pre- 
sented when  the  American  merchant  is  selling  to 
a  foreign  customer  from  whom  he  demands  a 
letter  of  credit  opened  in  New  York.  In  this  case 
the  foreign  purchaser  asks  his  bank  to  open  a 
credit  with  an  American  bank,  and  the  American 
seller  simply  prepares  his  documents  in  accordance 
with  the  terms  of  the  credit  and  negotiates  his 
drafts  with  his  own  bank, — or  with  the  bank  at 
which  the  credit  has  been  established. 

Where,  however,  the  foreign  purchaser  is  of 
sufficiently  good  standing  so  that  the  exporter  is 
willing  to  dispense  with  a  letter  of  credit,  there 
are  several  other  ways  in  which  the  transaction 
may  be  financed. 

1.  The  exporter  may  draw  at  sight  on  his  pur- 
chaser, with  documents  attached,  and  give  these 
documentary  drafts  to  his  bank  for  collection. 

2.  He  may  draw  a  time  draft  on  the  purchaser 
and  give  it  to  his  bank  for  collection,  with  instruc- 
tions to  obtain  acceptance  of  the  draft  and  hold 
the  documents  until  the  acceptance  is  paid. 

3.  He  may  draw  as  above  and  instruct  his  bank 
to  release  the  documents  when  the  draft  is  ac- 
cepted. 

4.  He  may  simply  invoice  the  goods  on  open 
account  to  the  purchaser. 

In  all  four  of  these  cases  it  may  be  that  the 
importer  is  in  a  sufficiently  strong  cash  position 

28 


so  that  he  does  not  require  any  advance  from  the 
bank.  Under  such  circumstances  he  uses  the  bank 
merely  as  a  collecting  agent.  For  this  service  the 
usual  charge  is  a  nominal  commission  plus  what- 
ever the  bank's  foreign  correspondent  will  charge 
for  obtaining  acceptance  and  payment. 

Very  often,  however,  the  exporter  is  anxious 
not  to  tie  up  his  funds,  and  therefore  will  request 
the  bank  to  carry  the  transaction  for  him.  This 
can  be  done  in  several  ways: 

1.  If  the  drafts  are  drawn  in  foreign  currency, 
the  bank  may  purchase  them  outright  from  the 
exporter,  in  which  case  it  will  not  charge  a  com- 
mission, but  will  figure  the  interest  for  the  ap- 
proximate time  the  funds  will  be  outstanding  in 
the  rate  of  exchange  it  applies.  Should  the  drawee 
refuse  payment  or  be  unable  to  pay,  the  bank  will 
then  look  for  payment  to  the  maker  of  the  bill, 
namely,  the  exporter.  If  the  bank  so  desires,  it 
may  require  the  additional  protection  of  a  fixed 
deposit  of  a  certain  percentage  of  the  outstanding 
collections. 

2.  If  the  drafts  are  drawn  in  dollars  the  pro- 
cedure is  much  the  same,  except  that  the  interest 
for  the  time  the  funds  will  be  outstanding  is  de- 
ducted as  discount  instead  of  being  calculated  in 
the  rate  of  exchange.  When  the  bank  does  not 
want  to  advance  the  full  amount  of  the  draft,  it 
will,  instead  of  asking  for  a  cash  deposit,  simply 
advance  whatever  portion  of  the  face  amount  it 
deems  proper,  thus  creating  a  margin  in  the  bill 
itself.  Sometimes,  also,  it  is  so  arranged  that  the 
exporter  will  draw  for  only  a  certain  portion  of 
the  invoice  value,  so  that  the  bank  is  protected  by 
having  title  to  goods  worth  more  than  the  amount 
of  its  advance. 

3.  If  the  exporter  is  unable  to  obtain  a  letter 
of  credit  established  in  his  favor,  and  would  only 
draw  direct  if  he  were  relieved  of  all  liability 
should  the  buyer  default  in  meeting  his  acceptance, 
the  bank  may  in  certain  cases  be  willing  to  assume 

29 


Straight 
Collections 


Sale  of 
Foreign 
Currency 
Drafts 


Discount  of 

Dollar 

Drafts 


Del  Credere 


The  Export 

Acceptance 

Credit 


Operation 


this  risk  and  buy  the  foreign  bills  without  recourse 
to  the  exporter.  This,  however,  the  bank  will  only 
do  either  where  it  knows  the  drawee  and  has  abso- 
lute confidence  in  him,  or  where  it  can  reinsure 
the  risk  in  one  way  or  another.  For  assuming  this 
additional  liability,  usually  known  as  the  "del 
credere,"  the  bank  will  charge  a  fairly  heavy  com- 
mission, commensurate  with  its  judgment  of  the 
hazard. 

The  methods  just  discussed  all  involve  the  use 
of  the  bank's  funds,  and  the  willingness  of  any 
bank  to  finance  its  export  customers  by  making 
such  advances  depends  to  a  large  extent  upon  how 
much  money  it  has  available  for  the  purpose.  The 
same  end  can,  however  be  accomplished  by  the  use 
of  the  acceptance  market,  in  such  a  way  that  the 
bank  lends  nothing  further  than  its  credit. 

The  export  acceptance  credit  is  based  upon  an 
agreement  signed  by  the  exporter  to  the  effect 
that,  in  consideration  of  the  bank's  willingness  to 
accept  drafts  drawn  upon  it  against  certain  spe- 
cified collections,  he  the  exporter,  will  guarantee 
that  in  the  event  that  the  proceeds  of  the  collec- 
tions should  not  be  received  in  time  to  meet  the 
outstanding  acceptance  at  maturity,  he  himself 
will  place  the  bank  in  funds. 

Assuming,  for  example,  that  the  exporter  has 
sold  three  lots  of  merchandise  of  $10,000,  $20,000, 
and  $30,000.  to  three  different  parties  in  Holland 
on  thirty  day  sight  drafts,  he  will  bring  these 
drafts  with  their  respective  documents  to  the  bank, 
together  with  an  agreement  such  as  we  have  out* 
lined.  The  bank  will  then  let  him  draw  upon  it 
for  $50,000.  at  sixty  days,  thus  allowing  time  for 
the  collections  to  reach  their  destination  and  for 
the  proceeds  to  be  remitted  before  its  acceptance 
falls  due.  If  remittances  are  to  be  made  by 
cable  the  drafts  on  the  bank  would  be  for  a  cor- 
respondingly shorter  time. 

The  bank's  factor  of  safety  over  and  above  the 
solvency  of  the  exporter,  lies  in  the  margin  be- 

30 


tween  the  total  amount  of  the  pledged  collections  Margin  of 
and  the  amount  which  it  accepts  against  them.  Security 
and  this  margin  is  of  course  adjusted  to  suit  the 
individual  case.  Where  the  exporter  is  a  very 
powerful  corporation  with  large  resources  and  a 
good  reputation,  the  margin  may  be  entirely  dis- 
pensed with.  In  a  few  exceptional  cases  a  bank 
will  even  permit  such  a  corporation  to  draw  upon 
it  against  shipments  made  abroad  on  open  account, 
provided  the  evidence  of  such  shipments  passes 
through  its  hands  during  the  life  of  its  accept- 
ances. This  practice,  however,  is  strictly  confined 
to  a  very  small  class  of  large  concerns  of  un- 
doubted standing. 

For  this  service  the  bank  will  charge  its  usual 
acceptance  fee  plus  its  collection  commission  and 
costs.  The  great  advantage  of  such  financing  is  Advantage 
that  it  makes  the  exporter  more  independent  of 
temporary  periods  of  stringency  during  which 
his  banks  are  reluctant  to  advance  cash,  while 
accepting  institutions  would  be  more  willing  to 
lend  their  credit  and  let  the  market  absorb  their 
acceptances. 


31 


I 


Kinds  of 
Domestic 
Acceptance 
Credits 


Domestic 
Shipment 
for  Buyer's 
Account 


CHAPTER    SIX 

Domestic  Acceptance  Credits 

BEFORE  we  proceed  to  apply  the  principles  of 
import  and  export  acceptance  financing  to  a 
few  concrete  examples,  it  may  be  well  to  consider 
for  a  moment  the  two  other  forms  of  acceptance 
credits  which  American  banks  are  permitted  to 
extend.  One  of  these,  the  acceptance  for  the  pur- 
pose of  creating  dollar  exchange,  which  we  shall 
discuss  in  the  next  chapter,  is  of  little  interest  to 
the  American  merchant,  since  it  can  be  given  only 
for  foreign  banks  and  bankers  in  certain  countries. 

The  domestic  acceptance  credit  is,  however,  of 
very  great  importance  to  the  American  commer- 
cial enterprise,  and  has  perhaps  the  widest  appeal 
of  all.  For  this  reason  it  is  also  the  form  which 
tends  the  most  readily  to  invite  abuse.  It  may  be 
given  for  either  of  two  purposes ;  to  finance  a  do- 
mestic shipment  of  goods;  or  to  finance  readily 
marketable  staples  stored  in  independent  ware- 
house pending  their  sale  or  distribution  into  the 
processes  of  manufacture. 

The  financing  of  a  domestic  shipment  may  be 
done  by  a  bank  for  the  account  of  either  the  buyer 
or  the  seller.  Where  it  is  done  for  the  buyer  the 
procedure  is  substantially  the  same  as  in  opening 
an  import  letter  of  credit,  except  of  course  that 
the  transaction  itself  is  very  much  less  compli- 
cated. A  New  England  cotton  spinner  who  is  buy- 
ing cotton  in  New  Orleans  will,  for  instance,  ask 
his  bank  to  open  a  commercial  letter  of  credit  in 
favor  of  the  Southern  shipper.  At  the  same  time 
he  will  sign  an  acceptance  agreement  binding  him 
to  provide  funds  before  maturity  of  the  bank's 
acceptance.  The  shipper  obtains  his  railroad  bills 

32 


of  lading  and  negotiates  with  his  New  Orleans 
bank,  thus  receiving  his  funds.  The  Southern  bank 
forwards  the  drafts  to  Boston  releasing  against 
the  acceptance  of  the  buyer's  bank.  The  latter,  in 
turn,  either  releases  the  cotton  under  trust  re- 
ceipt, or  has  it  warehoused,  as  the  case  may  be. 
If  the  cotton  is  liquidated  before  the  acceptance 
has  matured,  the  buyer  will  anticipate  and  receive 
his  rebate ;  if  not,  he  will  provide  funds  when  the 
due  date  arrives. 

This  very  same  transaction  could  be  financed  by 
the  New  Orleans  bank  for  account  of  the  seller, 
but  this  would  be  less  desirable  for  two  reasons: 
in  the  first  place  the  commodity,  which  underlies 
the  transaction,  immediately  passes  out  of  the 
control  of  the  bank,  leaving  it  with  nothing  but  the 
assurance  that  a  distant  debtor  will  pay,  and  only 
a  secondary  recourse  to  its  customer,  the  shipper ; 
in  the  second  place,  the  shipper's  bank  is  not  usu- 
ally in  a  position  to  supervise  the  liquidation  of 
the  transaction.  The  first  objection  can  be  partially 
overcome  by  having  the  shipper  draw  a  supple- 
mentary draft  of  like  maturity  on  the  buyer, 
which  the  latter  must  accept  in  order  to  obtain  the 
documents,  thus  making  the  transaction  similar 
to  an  export  acceptance  credit,  in  so  far  as  the 
acceptance  is  secured  by  a  collection.  Even  though 
the  transaction  is  in  this  way  made  technically 
self -liquidating,  the  fact  remains,  as  has  been  ad- 
mirably pointed  out  in  a  recent  article  by  Mr. 
Wilbert  Ward,  that  "The  bulwark  against  inflation 
is  the  careful  valuation  of  the  absorptive  power  of 
buyers"  and  that  "The  best  judges  of  this  situation 
are  the  buyers'  banks." 

The  second  form  of  domestic  acceptance  credit 
is  the  one  whose  purpose  is  the  financing  of  "read- 
ily marketable  staples"  stored  in  warehouse.  This 
rather  baffling  term  has  been  defined  by  a  number 
of  rulings,  and  is  intended,  generally  speaking,  to 
cover  such  articles  as  are  constantly  being  dealt 
in  in  free  markets  and  at  readily  ascertainable 

33 


Domestic 
Shipment 
for  Seller's 
Account 


Credit 
Against 
Warehoused 
Staples 


operation 


Abuses 


prices,  so  that  they  can  at  any  time  be  realized 
upon  without  difficulty.  Under  the  regulations  of 
the  Federal  Reserve  Board  acceptances  made 
against  such  commodities  in  warehouse  are  eligi- 
ble only  if  the  commodity  is  stored  pending  a  rea- 
sonably immediate  sale,  shipment,  or  distribution 
into  the  process  of  consumption  or  manufacture. 
Furthermore,  the  warehouse  must  not  be  under 
the  control  of  the  borrower. 

If,  therefore,  a  merchant  desires  to  obtain  an 
acceptance  credit  against  grain,  he  will  either  give 
the  bank  negotiable  elevator  receipts  and  insur- 
ance policies,  or  better  still,  he  will  have  the  grain 
stored  and  insured  in  its  name.  He  will  then  sat- 
isfy the  bank  that  he  is  not  holding  the  grain  on 
speculation,  but  expects  to  deliver  it  against  sales, 
either  domestic  or  foreign,  within  a  reasonable 
time.  Upon  his  executing  the  usual  acceptance 
agreement,  the  bank  will  then  allow  him  to  draw 
upon  it  for  not  longer  than  three  months.  As  the 
grain  is  sold  the  bank  will  deliver  the  receipts 
against  cash,  or  shipping  documents,  which  will 
convert  into  cash,  and  it  will  rebate  interest  for 
the  unexpired  time  of  the  acceptance. 

In  both  forms  of  domestic  acceptance  credits 
there  is  a  distinct  danger  of  abuse;  the  peril  in 
credits  for  domestic  shipment  lurks  in  the  fact 
that  through  carelessness  such  credits  are  easily 
permitted  to  run  on  after  the  underlying  transac- 
tion has  been  liquidated;  with  credits  against 
goods  in  warehouse  there  is  a  risk  that  these 
credits  may  be  misused  to  finance  speculative  pur- 
chases, and  that  the  banks  may  not  effectively 
control  the  warehouse  companies  and  the  colla- 
teral. 


^ 


» 


34 


¥ 


CHAPTER    SEVEN 

Acceptances  to  Create  Dollar 

Exchange 

UNDER  section  thirteen  of  the  Federal  Reserve 
Act,  American  banks  are  empowered  to  accept 
drafts  of  not  longer  than  three  months,  drawn 
upon  them  by  banks  or  bankers  in  certain  coun- 
tries for  the  purpose  of  creating  dollar  exchange. 
The  object  of  granting  this  privilege  was  to  pro- 
vide a  means  whereby  dollar  exchange  could  easily 
be  obtained  in  such  countries  where  the  customs 
of  the  trade  require  it.  Any  member  bank  desir- 
ing to  create  such  acceptances  must  apply  for 
permission  to  the  Federal  Reserve  Board,  and  the 
Board's  rulings  in  such  cases  are  published  from 
time  to  time  in  the  Federal  Reserve  Bulletin. 

This  form  of  financing  applies  primarily  in 
Central  and  South  America,  where  the  American 
dollar  is  the  dominating  factor,  and  to  the  insular 
possessions  of  the  United  States.  It  further  ap- 
plies, and  is  gradually  being  extended  to  other 
parts  of  the  world,  where  the  United  States  dollar 
plays  an  important  part,  and  where  the  foreign 
banks  consequently  experience  a  demand  from 
their  customers  for  American  funds. 

This  demand  may  arise  from  the  fact  that  the 
foreign  country  is  a  heavy  purchaser  of  American 
goods,  and  that  United  States  funds  are  there- 
fore required  in  order  to  make  the  necessary  pay- 
ments, while  it  is  still  some  time  before  the  crop 
movement  will  provide  any  dollar  drafts.  This 
situation  frequently  arises  in  countries  which  are 
dependent  upon  one  crop,  such  as  wool  or  coffee. 

At  the  same  time  prospective  shippers  may  wish 
to  secure  the  existing  dollar  rate  of  exchange  by 

85 


Legal 
Restrictions 


Application 


Methods  of 
Operation 


selling  future  dollars  to  the  local  foreign  banks, 
and  these  banks,  having  bought  forward  dollars, 
can  now  supply  the  demand  for  spot  through  their 
sales  of  dollar  exchange  drafts. 

A  dollar  exchange  drawing,  once  permission  is 
obtained  from  the  Board,  may  be  handled  by  the 
accepting  bank  in  one  of  several  ways.  Under  all 
circumstances  the  foreign  bank  must  agree  to  pro- 
vide cover  before  the  acceptance  matures,  but 
during  the  life  of  the  credit  various  things  may 
happen.  The  accepting  bank  may  require  the  for- 
eign bank  to  deposit  the  equivalent  of  its  dollar 
drawing  in  local  currency  with  a  third  party,  gua- 
ranteeing also  to  make  further  deposits  if  from 
time  to  time  required  in  order  to  maintain  full 
cover.  Such  a  deposit  may  also  be  made  in  a  third 
currency,  as,  for  instance,  where  an  Argentine 
bank  would  draw  dollars  and  deposit  the  equiva- 
lent in  Sterling  to  the  American  bank's  credit  with 
its  London  correspondent.    Again,  the  accepting 
bank  might  be  willing  to  take  local  government 
bonds  as  collateral ;  and  in  some  cases,  where  the 
borrower  is  an  exceptionally  strong  institution, 
the  accepting  bank  might  go  even  further  in 
facilitating  the  transaction. 


«#» 


36 


CHAPTER    EIGHT 

i  ■•■*■■■"-■* 

Grain  and  Foodstuffs 

HAVING  outlined  in  the  preceding  chapters  the 
general  operation  of  the  various  forms  of 
acceptance  financing,  it  may  now  be  interesting  to 
see  how  these  methods  apply  to  a  few  of  the  major 
industries.  Since  the  most  fundamental  requisites 
for  the  existence  of  man  are  food  and  protection 
of  his  body,  it  is  natural  to  consider  first  how 
foodstuffs  and  clothing  materials  may  be  more 
easily  procured  by  means  of  the  acceptance  credit. 

The  United  States  produces  far  more  grain  than 
it  consumes.  During  1921  we  exported: 

280,057,601  Bushels  of  Wheat, 
128,974,505  Bushels  of  Corn, 
29,811,721  Bushels  of  Rye, 
25,834,000  Bushels  of  Barley. 

The  bulk  of  this  grain  was  sent  to  European 
countries,  the  largest  purchasers  of  American 
grain  being  England,  France,  Italy,  Germany, 
Holland  and  Scandinavian  countries. 

The  acceptance  credit  can  be  used  to  finance 
grain  from  the  moment  it  is  harvested  until  the 
proceeds  of  its  sale  abroad  are  collected.  When 
the  grain  is  first  stored  in  elevator  pending  its 
shipment  to  seaboard,  the  originating  grain  mer- 
chant may  properly  finance  his  purchases  from 
the  grower  by  a  domestic  acceptance  credit  against 
warehouse  receipts  lodged  with  his  bank.  As  the 
grain  moves  to  seaboard,  railroad  bills  of  lading 
will  be  substituted,  and  usually  these  are  accom- 
panied by  shippers'  drafts  drawn  on  an  export 
merchant  in  one  of  the  principal  ports.  The  export 
merchant  will  again  require  the  assistance  of 
banks  to  enable  him  to  take  up  these  drafts  and 

37 


The  U.  S.  an 
Exporter  of 
Grain 


Use  of 
Domestic 
Acceptance 
Credits 


Export 
Credits 


Meats 


Sugar  and 

Other 

Foodstuffs 


assemble  his  grain  at  tide-water,  and  eventually 
to  make  his  shipments  abroad.  This  may  give  rise 
either  to  an  acceptance  credit  for  domestic  ship- 
ment or  against  warehoused  grain,  which  again 
will  gradually  be  converted  into  an  export  accept- 
ance credit.  If  the  foreign  shipments  are  to  be 
made  immediately  when  the  grain  is  received 
from  the  West,  an  export  credit  is  often  resorted 
to  in  the  first  instance. 

A  certain  amount  of  grain  is  of  course  sold 
under  letters  of  credit  established  here  by  Euro- 
pean purchasers  through  their  banks.  Another 
very  large  proportion  is  sold  on  foreign  currency 
drafts  which  are  not  ordinarily  used  as  the  basis 
for  an  export  acceptance  credit.  By  far  the  largest 
proportion,  However,  is  sold  abroad  in  dollars  and 
is  most  easily  financed  by  an  export  acceptance 
credit  with  the  documentary  shippers'-drafts  as 
the  underlying  collateral. 

The  United  States  is  both  an  importer  and  ex- 
porter of  meat  and  meat  products.  The  so-called 
Big  Five  Packers  are  large  shippers  to  Europe, 
chiefly  of  lard  and  similar  meat  products, 
and  these  transactions  again  are  most  suitably 
financed  by  export  acceptance  credits.  Imports  of 
frozen  meat  from  the  Argentine,  on  the  other 
hand,  are  most  readily  handled  by  means  of  the 
import  letter  of  credit. 

The  bulk  of  the  sugar  consumed  in  the  United 
States  is  grown  in  Cuba,  whence  it  is  imported  on 
credits  opened  by  American  banks  on  behalf  of 
the  large  refineries  and  produce  merchants.  A 
number  of  the  big  Cuban  sugar  companies,  which 
are  American  owned  and  controlled,  also  make  it 
a  practice  to  finance  the  actual  growing  of  the 
sugar  crop  by  means  of  acceptance  credits.  In 
such  cases  the  drafts  are  drawn  during  the  so- 
called  dead  season,  and  during  their  life  become 
secured  by  sugar  in  warehouse,  being  ultimately 
liquidated  by  the  sale  of  this  sugar.  In  some  cases 
this  same  raw  sugar  is  then  re-financed  during  the 

38 


A 


refining  process  by  an  import  acceptance  credit, 
or  by  a  domestic  acceptance  credit  against  refined 
sugar  in  warehouse  pending  sale. 

The  importation  of  coffee  from  Central  and 
South  America,  of  nuts  from  South  America,  and 
of  teas  and  spices  from  the  Orient,  is  financed 
largely  by  the  use  of  import  letters  of  credit.  So 
also  are  financed  shipments  of  cocoa,  beans,  rice, 
vegetable  oils,  fruits,  and  many  other  foodstuffs. 


H^ 


\ 


39 


CHAPTER    NINE 


The  Textile  Raw  Materials 

T^HE  three  chief  raw  materials  from  which  tex- 

-■•  tile  fabrics  are  made  are  cotton,  wool  and  silk. 

'^^^  United  States  is  the  world's  largest  producer 

uj.  Imports    of  cotton,  and  therefore  exports  a  heavy  surplus 


and 
Exports 


Cotton 


Domestic 

Acceptance 

Credits 


of  raw  material  which  is  not  consumed  by  do- 
mestic spinners.  On  the  other  hand,  all  the  silk 
which  is  used  in  the  United  States  is  imported 
from  foreign  countries.  Of  the  wool  consumed  in 
the  United  States  about  one-third  is  grown  in  this 
country,  the  other  two-thirds  being  imported 
chiefly  from  South  America,  Australasia  and 
South  Africa. 

The  United  States  produces,  roughly  speaking, 
two-thirds  of  the  cotton  which  is  grown  in  the 
entire  world,  and  consumes  approximately  one- 
fourth  of  the  world's  cotton  supply.  The  average 
cotton  crop  of,  let  us  say  nine  million  bales,  is 
therefore  divided  roughly  into  a  little  over  a  half 
which  is  exported,  and  a  little  less  than  a  half 
which  is  used  by  domestic  mills.  The  use  of  the 
acceptance  credit  in  financing  the  cotton  crop  of 
the  United  States  is  manifold. 

In  the  first  place  when  the  cotton  is  collected  at 
concentration  points  and  compressed  into  bales,  it 
is  usually  stored  in  warehouse  pending  sale  or 
shipment  by  the  Southern  cotton  merchants.  A 
great  deal  of  the  cotton  stored  in  this  manner  is 
financed  during  the  preliminary  stage  of  distribu- 
tion by  domestic  acceptance  credits  against  ware- 
house receipts.  That  portion  of  the  cotton  which 
is  destined  for  domestic  consumption  is  then  fre- 
quently financed  by  a  second  acceptance  credit 
opened  by  the  consumer  or  the  consumer's  pur- 

40 


J 


i 


i 


\ 


chasing  agent,  and  this  second  credit  may  either 
be  against  domestic  shipment,  or  a  credit  under 
which  the  cotton  is  warehoused  by  the  mill  await- 
ing manufacture.  In  other  words,  for  the  cotton 
which  is  consumed  in  this  country  two  credits 
come  into  question ;  the  first  for  the  merchant  who 
collects  the  cotton  in  the  South,  and  the  second  for 
the  ultimate  consumer.  It  may,  however,  easily 
occur  that  one  or  more  intervening  middle  men 
will  in  turn  make  use  of  acceptance  financing  to 
carry  the  cotton  before  it  ultimately  reaches  the 
mill. 

As  for  the  cotton  which  is  exported,  the  pro- 
cedure usually  starts  in  the  same  way,  that  is,  with 
a  domestic  acceptance  credit  against  warehouse 
receipts.  This  credit  is  then  gradually  converted 
into  an  export  credit  under  which  ocean  bills  of 
lading  and  shippers'  drafts  take  the  place  of  the 
warehouse  receipts.  If  the  cotton  is  sold  in  fairly 
stable  foreign  currencies,  the  credit  is  usually 
liquidated  at  the  time  that  the  foreign  currency 
drafts  are  sold.*  If,  on  the  other  hand,  the  cotton 
is  sold  abroad  in  dollars,  the  dollar  drafts  on  the 
foreign  purchasers  are  used  as  underlying  se- 
curity for  an  export  acceptance.  Quite  a  large 
proportion  of  the  cotton  exported,  however,  is 
shipped  under  letters  of  credit  opened  here  by  for- 
eign purchasers,  so  that  the  actual  shipment  is 
financed  by  them  and  not  by  the  American  ex- 
porter. 

The  manufacturers  of  tire  fabric,  who  require 
long-staple  cotton,  import  a  certain  amount  from 
Egypt,  and  certain  kinds  of  cotton  are  also  im- 
ported from  Haiti,  Brazil,  Peru  and  China.  These 
shipments  are  usually  financed  by  the  customary 
import  letters  of  credit. 

♦       *        *       4t 

In  the  assembling  and  marketing  of  the  do- 
mestic wool  crop  the  acceptance  credit  plays  much 

♦Under  the  present  chaotic  circumstances  there  are  a  number  of 
foreign  countries  on  which  most  American  banks  will  take  foreim 
currency  drafts  only  for  collection.  lorcign 

41 


Export 
Credits 


Imports 


Wool 


The 

Domestic 
Crop 


Foreign 
Wool 
Import 
Financing 


i 


Danger  of 

Trust 

Receipts 


the  same  part  as  in  the  distribution  of  the  coun- 
try's annual  output  of  cotton.  Whether  for  do- 
mestic shipments,  or  for  financing  warehoused 
wool  preparatory  to  its  being  sold,  the  banks  every 
year  lend  their  credit  for  the  purpose  of  bringing 
the  wool  "off  the  back  of  the  sheep  to  the  back  of 
the  man." 

The  United  States  imports  a  large  quantity 
of  wool  from  South  America,  chiefly  from  Buenos 
Aires  and  Montevideo.  These  importations  are  al- 
most entirely  financed  by  letters  of  credit  opened 
by  the  American  wool  merchants,  most  of  whom 
are  located  in  Boston.  There  are  a  few  large 
manufacturers  who  import  for  their  own  account, 
but  the  bulk  of  the  foreign  wools  brought  into  the 
country  are  purchased  by  merchants,  who  in  turn 
sell  to  the  domestic  manufacturers.  Inasmuch  as 
wool  imports  are  seasonal,  the  import  letters  of 
credit  are  frequently  extended  by  domestic  accep- 
tance credits  against  warehoused  wool,  so  as  to 
enable  the  merchants  during  the  purchasing  sea- 
son to  carry  large  stocks,  which  are  ultimately 
distributed  to  manufacturers. 

Inasmuch  as  wool  is  rarely  sold  to  the  mills  in 
the  original  lots  as  received  from  foreign  coun- 
tries, it  is  necessary  to  permit  the  wool  merchant 
to  obtain  the  shipping  documents  under  trust 
receipt,  so  that  he  may  regrade  the  wool  into  such 
lots  as  will  suit  the  requirements  of  the  trade.  It 
is  almost  impossible  to  trace  a  given  lot  of  wool 
after  it  has  been  regraded,  and  therefore  an  ac- 
ceptance credit  which  is  secured  by  wool  released 
under  trust  receipt,  is  an  exceedingly  dangerous 
operation  which  can  only  be  risked  with  mer- 
chants who  have  a  large  capital  and  enjoy  the  very 
best  standing. 

Much  the  same  situation  holds  true  as  to  im- 
ports from  Australia,  New  Zealand,  South  Africa 
and  China,  from  all  of  which  countries  some  wool 
is  imported  on  dollar  import  letters  of  credit. 
There  is,  however,  this  difference  that  the  bulk  of 

42 


, 


Australian  and  New  Zealand  wool  is  handled  via 

London  and  is  often  imported  on  Sterling  letters 

of  credit. 

«    *    *    * 

No  silk  whatsoever  is  produced  in  the  United 
States,  the  chief  sources  of  import  being  Japan, 
China  and  Italy.  A  large  proportion  of  the  im- 
ports from  Japan  are  handled  by  Japanese  houses 
having  agencies  in  New  York,  and  of  recent  years 
these  Japanese  merchants  have  obtained  dollar 
import  letters  of  credit  from  American  banks  to 
finance  such  operations.  These  credits  are  almost 
invariably  fully  secured  by  warehouse  receipts 
covering  silk  in  storage,  or  by  trade  acceptances, 
resulting  from  the  sale  of  silk.  There  are  a  certain 
number  of  domestic  consumers  of  silk  who  are 
large  enough  to  import  their  own  raw  material, 
and  these  manufacturers  frequently  open  their 
own  import  letters  of  credit  through  their  banks 
and  receive  a  partial  release  of  the  merchandise 
under  trust  receipt  for  manufacture.  A  few  of 
the  most  important  American  silk  manufacturers 
are  so  well  known  in  Japan  that  they  receive  direct 
shipments  with  drafts  drawn  upon  themselves. 


Silk 

Imports 


43 


Proportion 
of  Imports 


Sources  of 
Hides  for 
Sole  Leather 


CHAPTER    TEN 

Hides  and  Skins 

SHOES  rank  next  to  food  and  clothing  as  the 
most  important  articles  of  our  daily  life.  The 
raw  material  for  sole-leather  consists  of  the  hides 
of  cattle,  whereas  most  upper  leather  is  produced 
from  the  skins  of  smaller  animals,  such  as  calves, 
sheep  and  goats.  (Hides  are  also  used  in  making 
upper  leather  by  the  splitting  process).  Of  all  the 
materials  consumed  in  this  country  in  the  manu- 
facture of  various  kinds  of  leather,  about  45%  of 
the  cattle  hides,  52%  of  the  calfskins,  60%  of  the 
sheep-skins  and  almost  100%  of  the  goat-skins, 
are  imported  from  foreign  countries.  By  far  the 
heaviest  importations  of  cattle  hides  are  from  the 
Argentine,  with  Canada  and  Uruguay  in  second 
and  third  places.  Calfskins  are  imported  chiefly 
from  France  as  well  as  from  India  and  a  number 
of  other  countries.  The  largest  imports  of  sheep 
skins  are  from  Australia  and  New  Zealand,  and 
the  next  largest  from  the  Argentine  and  Canada. 
Goat-skins  are  most  heavily  imported  from  Brit- 
ish India,  while  the  second  greatest  supply  is 
obtained  from  China. 

Sole  leather  tanners  derive  their  raw  material 
from  two  sources;  first  from  the  domestic  pack- 
ing industry  ("Packer  Hides"),  and  second  from 
the  large  Argentine  packing  plants  ("Frigorifi- 
cos").  A  further  supply  is  obtained  from  the 
smaller  killing  plants  throughout  this  country  and 
South  America.  A  few  special  kinds  of  hides  are 
imported  from  other  countries. 

Most  of  the  sole  leather  tanners  of  any  conse- 
quence import  their  own  Frigorificos  from  the 
Argentine  and  these  imports  are  almost  invariably 
financed  by  dollar  import  letters  of  credit.   The 

44 


'I 


smaller  tanners  buy  through  merchants  of  com- 
mission dealers,  who  again  make  use  of  the  same 
sort  of  financing.  In  some  cases  the  American  im- 
porter maintains  his  own  establishment  in  the 
Argentine  which  does  his  buying  for  him.  It  is 
then  customary  for  the  importer's  bank  either 
to  open  sight  credits  under  which  the  South  Amer- 
ican agent  may  draw,  and  to  refinance  these  sight 
credits  by  a  ninety  day  acceptance  in  New  York; 
or  to  cable  Pesos  to  Buenos  Aires  for  the  importer, 
for  which  he  pays  out  of  the  proceeds  of  drawing 
a  ninety  day  draft. 

Imports  of  China  hides  and  goat-skins  are  very 
frequently  financed  by  import  letters  of  credit, 
but  as  purchasing  in  China  has  to  be  done  in  small 
lots  by  agents  who  travel  through  the  country, 
such  imports  are  almost  entirely  handled  by  mer- 
chants who  specialize  in  this  business,  and  who 
often  have  to  provide  a  part  of  the  financing  out 
of  their  own  capital.  The  same  is  true  of  imports 
from  India  and  other  points  in  the  Far  East. 

Shipments  of  calfskins  and  light  hides  from 
Europe  are  sometimes  financed  by  import  letters 
of  credit,  but  more  frequently  the  American  im- 
porters enjoy  the  confidence  of  the  European  sell- 
ers to  such  an  extent  that  shipments  are  made  to 
them  direct,  either  on  consignment  or  on  sight  or 
time  drafts.  The  import  of  sheepskins  from  Aus- 
tralia is  financed  partially  through  London  on 
Sterling  credits,  and  partially  on  dollar  import 
letters  of  credit  issued  through  Australian  banks. 

The  releasing  of  hides  and  skins  under  trust 
receipt  to  a  manufacturer  is  far  less  dangerous 
than  in  the  case  of  cotton,  silk  or  wool.  It  is  quite 
feasible  to  mark  hides  and  skins  in  such  a  way 
that  they  may  be  traced  straight  through  the  tan- 
ning processes  and  identified  as  finished  leather, 
whereas,  the  identity  of  cotton,  silk,  or  wool  is  lost 
at  the  moment  that  the  bales  are  opened  and  their 
contents  mingled. 


Financing 
Frigorificos 


China  Hides 


Sheepskins 


Trust 
Receipts 


< 


45 


t 


r 


I 


CHAPTER    ELEVEN 

Other  Raw  Materials  and 
Manufactured  Goods 

'T  would  be  impossible,  at  least  within  the  con- 
fines of  this  pamphlet,  to  follow  out  the  possible 
and  actual  uses  of  the  acceptance  credit  in  all  the 
various  ramifications  of  our  import  and  export 
Manifold  Use    trade.  Our  object  here  is  not  to  present  a  complete 
of  the  picture,  but  merely  to  sketch  in  the  outlines  by 

CredU**^^  choosing  a  few  of  the  most  prominent  features. 
As  in  the  case  of  the  commodities  we  have  just 
considered,  so  also  the  acceptance  credit  is  used 
to  bring  oil  from  Mexico,  hemp  from  the  Philip- 
pines, dyes  from  Germany,  tin  from  the  Straits 
Settlements,  lumber  from  Alaska,  rubber  from  the 
East  and  from  Brazil,  jute  and  burlap  from  India, 
woodpulp  from  Sweden,  and  any  number  of  other 
things  from  different  parts  of  the  world  to  the 
United  States.  So  also  are  the  surplus  raw  ma- 
terials produced  in  this  country,  and  the  products 
of  its  variegated  industries  distributed  to  every 
country  on  the  face  of  the  globe. 

In  the  metal  industries  shipments  of  ore  from 
the  mine  to  the  furnace,  of  pig  iron  from  the 
furnace  to  the  foundry,  and  of  finished  steel  from 
the  foundry  to  its  ultimate  destination,  are  all  fit 
cargo  for  the  acceptance  credit.  The  same  is  true 
of  the  non-ferrous  metals,  particularly  of  copper 
and  copper  products.  And  silver  and  even  gold, — 
curious  as  it  may  seem  that  they  should  require 
a  credit  vehicle  to  carry  them, — are  frequently 
shipped  from  one  country  to  another  by  means  of 
the  banker's  acceptance. 

We  have  seen  in  a  superficial  manner  how  the 
acceptance  credit  provides  a  means  for  financing 

46 


Metals 


our  export  of  grains,  foodstuffs,  and  cotton.  In  a 
similar  way  it  serves  to  float  the  burden  of  our 
foreign  sales  of  finished  textiles,  leather  and  lea- 
ther goods,  and  all  the  vast  quantity  of  manu- 
factured articles  that  fall  between  the  extremes  of 
simple  tools,  such  as  hammers  and  saws,  and  com- 
plicated machinery  such  as  agricultural  tractors, 
automobiles  and  railroad  equipment. 

To  take  only  one  example,  the  exports  of  the 
automobile  industry,  exclusive  of  trucks  and 
motor-cycles,  have  for  the  last  ten  years  aver- 
aged in  excess  of  one  hundred  million  dollars  per 
annum.  At  the  present  time  a  very  large  part  of 
these  exports  are  being  financed  by  commercial 
letters  of  credit.  For  the  most  part  the  American 
automobile  manufacturers  are  unwilling  to  as- 
sume any  risk  whatsoever  in  connection  with  their 
foreign  sales,  and  insist,  therefore,  that  the  for- 
eign purchaser  provide  them  with  cash  against 
shipping  documents  in  New  York.  This  is  done, 
in  practically  every  instance,  by  means  of  a  letter 
of  credit,  opened  on  behalf  of  the  purchaser  by  his 
own  bank  with  its  New  York  or  middle-western 
correspondent.  The  manufacturer  is  advised  by 
the  bank  how  to  prepare  his  documents,  and 
whether  to  draw  at  sight  or  for  a  specified  length 
of  time,  with  or  without  discount  included,  as  the 
case  may  be.  Having  negotiated  his  documents, 
he  has  nothing  further  to  worry  about,  unless, 
having  drawn  a  time  draft  on  a  bank  and  dis- 
counted its  acceptance  thereof  in  the  open  market, 
he  should  be  called  upon  to  make  good  this  accep- 
tance to  a  bonafide  holder,  by  reason  of  the  bank's 
inability  to  meet  its  obligations.  This  contingency, 
while  remote,  should  nevertheless  be  borne  in 
mind  by  the  manufacturer,  so  that  he  will  not  con- 
sent to  ship  under  credits  opened  with  banks  of 
whose  solvency  he  is  not  absolutely  certain. 

A  few  automobile  companies  ship  to  their  own 
agencies  abroad  on  a  consignment  basis.  Others 
have  a  few  preferred  foreign  customers  to  whom 


Exports  of 

Manufactured 

Goods 


The 

Automobile 
Business  as 
an  Example 


Credits 
Opened  from 
Abroad 


47 


Credits 
Abroad 


Direct  they    make    direct    shipments    on    documentary 

Shipments  drafts.  This  latter  class  of  shipment  is  ideally 
financed  by  an  export  acceptance  credit  secured  by 
collections,  and  it  is  only  reasonable  to  assume 
that,  as  conditions  in  Europe  inspire  more  confi- 
dence, a  larger  proportion  of  the  business  will  be 
transacted  in  this  manner. 

In  a  general  way  the  automobile  situation  is 
analogous  to  a  great  many  other  lines.  Our  country 
is  young  in  the  export  of  manufactures;  it  has, 
as  every  one  knows,  become  a  real  export  factor 
The  Necessity  chiefly  by  reason  of  the  incapacitation  of  Euro- 
f  or  Giving  pean  competition.  Whereas  the  export  trade  of 
England,  Germany,  and  France  was  built  up  by 
years  of  endeavor,  and  by  a  willingness  to  extend 
credit  in  foreign  countries,  the  demand  for  our 
goods  abroad  is  due  almost  entirely  to  the  absolute 
necessity  for  them  which  has  arisen  during  recent 
years.  It  is  true  that  American  industry  was  quick 
to  take  advantage  of  the  opportunity;  true  also 
that  a  great  number  of  American  goods  have  be- 
comefirmly  established,  not  because  no  others  were 
obtainable,  but  because  of  their  intrinsic  merit; 
but  the  fact  remains  that  if  we  are  to  hold  our 
newly  acquired  foreign  customers,  we  must,  as 
soon  as  conditions  warrant,  grant  them  the  credit 
facilities  which  they  are  used  to  receiving  from 
British  and  German  merchants.  To  this  end  there 
is  to  be  found  no  greater  assistance  for  the  ex- 
porter than  the  export  acceptance  credit. 


PART    THREE 

The  Relation  of  the  Customer 

to  the  Bank 

HAVING  surveyed  hastily  the  general  operation 
of  the  acceptance  credit,  and  having  seen  in  a 
rather  impressionistic  manner  how  this  form  of 
financing  serves  some  of  the  major  needs  of  mod- 
ern business,  we  shall  proceed  now  to  an  equally 
brief  consideration  of  some  of  the  factors  that 
determine  the  relation  between  a  bank  and  its 
customers. 

The  object  of  this  part  of  our  discussion  is  to 
indicate  upon  what  grounds  a  bank  bases  its  atti- 
tude towards  business  which  may  be  proposed  to 
it,  and  also  to  point  out  a  few  of  the  pitfalls  which 
beset  the  path  of  acceptance  financing.  Since  we 
are  not  here  concerned  with  the  usual  form  of 
banking  business,  that  is,  with  the  deposit  ac- 
count, the  use  of  the  word,  "Client,"  is  in  every 
instance  intended  to  designate  an  actual  or  poten- 
tial borrower. 


48 


I 


'li 


1'! 


CHAPTER    TWELVE 


Becoming  Acquainted  with 
the  Customer 

THE  first  requirement  of  a  bank  in  forming  any 
relationship  is  confidence,  based  on  full  know- 
ledge. This  it  can  obtain  in  two  ways;  by  ask- 
ing the  customer,  and  by  asking  about  the  cus- 
tomer. By  inquiring  among  competitors,  from 
those  who  sell  to  and  buy  from  the  customer,  from 
commercial  agencies,  and  from  other  banks  who 
share  the  customer's  business,  a  bank  may  learn 
a  great  deal  worth  knowing ;  but  in  the  last  analy- 
sis, it  will  never  feel  absolute  confidence  unless 
the  customer  lays  all  his  cards  on  the  table.  For 
a  client  to  conceal  anything  from  his  bank  is  as 
foolish  as  if  he  concealed  it  from  his  doctor  or  his 
lawyer,  and  if  the  client  fears  that  his  banker  will 
not  preserve  absolute  discretion  in  regard  to  his 
affairs,  the  thing  for  him  to  do  is  to  take  his  busi- 
ness to  a  banker  concerning  whom  he  has  no  such 
apprehensions. 

The  three  chief  points  concerning  which  a  bank 
wishes  to  satisfy  itself  are :  the  moral  integrity  of 
the  client;  his  business  ability;  and  his  financial 
responsibility. 

In  answering  the  question  "Do  I  want  this  man 
as  a  business  associate?"  the  banker's  own  per- 
sonal impression  is  weighed  in  conjunction  with 
whatever  outside  opinions  he  has  been  able  to  col- 
lect. If  the  answer  is  negative,  no  further  con- 
sideration of  other  factors  is  necessary.  If,  on  the 
other  hand,  the  banker  feels  confidence  in  the 
client's  moral  character,  he  will  proceed  to  investi- 
gate his  business  ability  and  financial  means. 

61 


How  a  Bank 
Learns 


What  It 
Needs  to 
Know 


Character 


I 


The  question  of  capability  is  again  answered  by 
a  composite  picture  in  which  first  hand  impression 
Capability  is  combined  with  the  results  of  judicious  inquiry, 
but  a  third  factor  enters  into  the  consideration,  in 
that  business  ability  will  usually  show  concrete 
results.  Careful  study  of  a  series  of  the  annual 
balance-sheets  of  an  enterprise,  together  with  full 
knowledge  of  the  attendant  circumstances,  will,  in 
most  cases,  yield  a  fairly  clear  conception  as  to 
the  ability  of  the  management. 

This  same  analysis  will  also  provide  the  answer 
to  the  third  question,  which  is  the  financial  condi- 
Capitai  tion  of  the  client's  business.  The  intelligent  read- 
ing of  a  balance-sheet  is  an  art  which  cannot  be 
described  in  a  few  words ;  certainly  it  is  not  the 
mere  application  of  the  hackneyed  formula,  that 
quick  assets  must  bear  a  certain  minimum  propor- 
tion to  current  liabilities.  We  are  here  concerned, 
however,  not  so  much  with  the  problem  of  reading 
a  financial  statement,— which  after  all  is  the 
banker's  business, — ^as  of  preparing  it. 

From  this  point  of  view,  there  is  just  one  all 
important  axiom:  that  the  object  of  a  balance- 
Balance  sheet  is  not  to  make  a  certain  kind  of  showing,  but 
Sheets  to  present  the  facts  as  they  are.  Moreover,  a  bank 
is  not  merely  concerned  with  the  present,  but  is 
vitally  interested  in  the  probable  future  condition 
of  its  client's  affairs.  A  mere  statement  of  assets 
and  liabilities  and  a  summary  of  profit  and  loss 
accounts  as  of  a  certain  day  is  therefore  not  in  it- 
self sufficient.  Only  too  often  a  concern  that 
makes  an  excellent  showing  in  July  is  hopelessly 
insolvent  in  December,  because  of  certain  ele- 
ments which  do  not  figure  in  the  usual  balance- 
sheet,  but  which  are  nevertheless  vitally  im- 
portant. 

It  is  impossible  to  enumerate  the  supplementary 
information  with  which  a  client  should  provide 
his  bank.  Obviously  he  should  make  a  clean  breast 
of  all  contingent  liabilities,  no  matter  how  remote 
they  may  seem,  and  of  all  contractual  commit- 

62 


I 


ments.  He  should  prepare  also  a  full  schedule  of 
his  inventory  valuation  and  accounts  receivable, 
imparting  to  the  bank  any  doubts  he  may  enter- 
tain concerning  the  ability  of  his  customers  to  pay, 
or  the  possibility  of  disputed  items.  But  beyond 
all  these  concrete  factors,  once  the  relationship  is 
established,  he  should  take  the  bank  into  his  con- 
fidence in  regard  to  all  his  hopes  and  fears,  for 
only  in  this  way  can  he  receive  from  the  bank  the 
intelligent  advice  and  support  to  which  he  is  en- 
titled. 


The 

Invisible 
Figures 


k 


53 


The  Credit 
"Line" 


1 1 


Kinds  of 
Business 

The  Cotton 
Merchant 


$1 


CHAPTER    THIRTEEN 

The  Analysis  of  a  Customer's 

Business 

ASSUMING  that  a  bank  has  satisfied  itself  as  to 
the  standing  of  a  given  customer  and  is  in 
principle  prepared  to  finance  a  part  of  his  business, 
two  general  questions  then  arise:  first,  how  large 
a  total  commitment  the  bank  is  willing  to  make  to 
this  customer:  and,  second,  into  what  classes  of 
business  this  commitment  is  to  be  subdivided. 

The  establishment  of  a  general  "line"  of  credit 
depends  chiefly  upon  the  factors  already  consid- 
ered in  the  analysis  of  the  customer,  that  is,  his 
standing  and  the  amount  of  working  capital  he 
has  at  his  disposal.  In  addition,  the  character  of 
his  business  and  of  the  articles  in  which  he  deals, 
and  the  amount  of  accommodation  he  is  receiving 
from  other  banks,  are  the  most  important  ele- 
ments. 

Here  once  more  we  are  faced  with  the  unpleas- 
ant necessity  for  inadequate  generalization,  both 
as  regards  different  kinds  of  business  and  differ- 
ent articles  of  trade.  To  take  only  one  example, 
the  cotton  merchant  and  the  cotton  manufacturer 
will  serve  to  illustrate  what  is  meant  by  different 
kinds  of  business.  The  dealer  in  raw  cotton  ordi- 
narily requires  no  fixed  assets  in  the  way  of  plant 
or  machinery;  his  entire  invested  capital,  what- 
ever it  may  be,  is  represented  either  in  cotton,  or 
in  money  paid  or  owing  to  him  by  reason  of  his 
sales  of  cotton.  Similarly  his  debts  will  consist  of 
accounts  payable  for  cotton  he  has  bought,  or  of 
bank  loans  or  credits  against  cotton  in  warehouses 
or  sales  in  the  process  of  collection.  With  him  it 
is  therefore  largely  a  question  of  what  proportion 

54 


f 


i 


his  assets  bear  to  his  liabilities,  whether  his  un- 
sold cotton  is  hedged  by  sales  of  future  contracts, 
whether  all  his  sales  are  covered  by  purchases, 
and  what  unused  borrowing  facilities  he  has  at  his 
disposal  from  other  sources. 

The  cotton  manufacturer,  on  the  other  hand, 
has  a  large  part  of  his  invested  capital  tied  up  in 
plant  and  machinery,  another  part  temporarily 
immobilized  in  material  which  is  in  the  process  of 
manufacture,  and  only  the  remainder  in  the  form 
of  quickly  realizable  assets,  such  as  unused  raw 
cotton,  finished  goods  and  accounts  receivable. 
His  liabilities  may  consist  of  bonds,  secured  by 
mortgage  on  the  plant ;  bills  payable  for  cotton, 
supplies  or  machinery ;  and  bank  loans  and  credits 
of  various  kinds.  What  is  more  he  has  a  heavy 
payroll  to  meet,  labor  conditions  to  contend  with, 
sales  campaigns  to  organize,  and  a  number  of 
other  things  to  worry  about,  all  of  which  tend  to 
complicate  his  business.  In  deciding  what  commit- 
ment to  make  to  a  client  of  this  sort,  a  bank  will 
obviously  have  to  consider  a  variety  of  factors  in 
addition  to  those  affecting  the  case  of  the  cotton 
merchant. 

The  difference  of  risk  arising  from  the  char- 
acter of  the  underlying  commodity  is  again  best 
demonstrated  by  a  concrete  instance.  In  dealing 
with  a  grain  merchant  the  bank  knows  that  his 
funds,  and  consequently  borrowed  funds  as  well, 
are  invested  in  wheat,  corn,  oats,  rye,  or  barley, 
all  of  which  are  quoted  every  day  and  can  readily 
be  realized  upon  at  any  time.  In  contemplating  a 
credit  to  an  importer  of  nuts,  on  the  other  hand, 
the  bank  takes  into  consideration  that  it  is  dealing 
with  a  commodity  which  not  only  lacks  a  wide  and 
reasonably  steady  market,  but  is  perishable  as 

well. 

mm** 

Having  established  by  careful  study  the  amount 
of  general  credit  to  be  held  at  the  disposal  of  a 
given  customer,  it  remains  for  the  bank  to  decide 

55 


As  Against 
the  Cotton 
Manufacturer 


Kinds  of 
Commodities 


Distribution 
of  the  "Line" 


In  Financ- 
ing Sales 


W 


In  Financing 
Purchases 


how  this  line  is  to  be  used  for  different  kinds  of 
transactions,  and  what  conditions  are  to  govern 
each  particular  piece  of  business.  Where  it  is  a 
question  of  financing  sales,  the  distribution  of 
risks  among  different  purchasers  and  different 
countries  is  an  important  consideration.  A  bank 
might,  for  instance,  easily  object  to  financing 
sales  of  more  than  $50,000  worth  of  goods  to  one 
foreign  concern,  even  though  it  were  willing  to 
give  its  customer  credits  up  to  $500,000.  It  might 
also  be  unwilling  that,  out  of  a  total  commitment 
of  $500,000,  more  than  $100,000  should  at  any 
time  be  outstanding  in  collections  on  any  one  coun- 
try where  conditions  are  somewhat  unstable. 
Again,  while  it  might  be  willing  to  finance  collec- 
tions in  one  place  releasing  documents  against  ac- 
ceptance, it  might  insist  that  documents  be  de- 
livered in  another  only  against  payment.  It  might 
grant  a  credit  of  90%  of  the  value  of  collections  on 
certain  stable  countries  and  refuse  to  advance 
more  than  50%  on  bills  drawn  on  others  in  whose 
economic  conditions  it  lacked  confidence. 

Where  the  problem  is  that  of  financing  pur- 
chases, various  other  factors  are  involved.  Pri- 
marily, the  bank  must  gauge  the  actual  buying 
power  of  its  customer  and  be  constantly  on  its 
guard  to  discourage  him  from  over-heavy  pur- 
chases. Further,  the  bank  must  to  a  certain  ex- 
tent consider  the  market  conditions  for  the  article 
which  is  to  be  purchased,  not  only  from  the  point 
of  view  of  any  one  customer's  business,  but  taking 
into  consideration  its  own  total  commitments  in 
that  particular  article  of  trade.  For  example,  a 
bank  might  refuse  without  special  protection  to 
open  a  credit  of  $200,000  for  the  importation  of 
rubber,  not  because  the  amount  was  in  excess  of 
the  importer's  established  line  of  credit,  but  be- 
cause it  thought  that  the  rubber  market  was 
weak.  Feeling  that  crude  rubber  prices  were  likely 
to  suffer  a  sudden  drop,  the  bank  might  refuse, 
either  because  it  considered  the  business  unwise 


56 


for  its  client  to  undertake,  or  because  its  own  com- 
mitments based  on  rubber  transactions  were  as 
heavy  as  it  desired  them  to  be  for  the  moment. 

Finally,  in  the  financing  of  purchases,  there  is 
the  problem  of  deciding  to  what  extent  any  given 
credit  shall  remain  secured.  This  is  very  largely 
a  matter  which  depends  upon  the  nature  of  the 
business.  Leaving  aside  those  customers  who  are 
not  strong  enough  to  be  entitled  to  any  unsecured 
credit  whatsoever,  the  question  is  one  which  crops 
up  with  almost  every  client  at  one  time  or  another, 
and  frequently  a  customer  will  falsely  construe  a 
bank's  unwillingness  to  release  goods  from  ware- 
house as  indicating  a  lack  of  confidence.  The  fact 
of  the  matter  is  that  all  banks  must  restrict  within 
certain  limits  the  amount  of  unsecured  credits 
which  they  extend,  and  that  they  can  only  per- 
form the  maximum  service  to  the  business  com- 
munity if  they  reserve  such  credits  for  the  cases 
in  which  they  are  really  required.  There  is  no 
valid  reason  why  every  export  credit  should  not 
be  self-liquidating  and  self-secured,  but  in  the 
case  of  imports  or  domestic  purchases  there  are 
cases  where  the  borrower  must  obtain  the  goods, 
either  for  delivery  under  sales,  or  for  manufactur- 
ing purchases.  In  some  of  these  latter  instances 
it  is  possible  for  the  borrower  without  hardship  to 
substitute  other  collateral,  but  where  this  cannot 
be  done  the  bank  must  either  extend  unsecured 
credit  or  decline  the  business. 


The  Question 
of  Collateral 


/ 


li 


/. 


67 


It 


I 

I  I' 


' 


Standardised 
Forms 


The  Import 

L/C 

Application 


Beneficiary 


CHAPTER    FOURTEEN 

A  Few  Technical  Pitfalls 

AVAST  amount  of  trouble  could  be  avoided  in 
the  use  of  commercial  letters  of  credit  if 
phrases  always  meant  the  same  thing  to  different 
people,  and  if  more  care  were  exercised  in  the 
wording  of  the  terms  and  instructions  given  by 
one  party  to  another.  Much  has  been  accomplished 
by  a  recent  conference  at  which  most  of  the  lead- 
ing banks  and  bankers  agreed  upon  certain  stand- 
ard forms*  to  be  used  in  connection  with  letter  of 
credit  financing,  but  even  more  remains  to  be  done 
in  the  way  of  disseminating  knowledge  among  the 
users  of  such  credits.  For  this  reason  we  shall 
mention  briefly  a  few  of  the  most  frequent  causes 
of  misunderstanding. 

When  a  customer  requests  his  bank  to  open  an 
import  letter  of  credit  he  signs  two  documents, 
an  application  and  a  letter  of  credit  agreement, 
the  latter  being  printed  on  the  reverse  side  of  a 
copy  of  the  credit  as  issued  by  the  bank. 

In  making  out  the  application  the  client  states : 

1.  In  whose  favor  the  credit  is  to  be  opened, 
by  mail  or  cable. 

2.  For  what  amount  it  is  to  be  opened. 

3.  For  how  long  it  is  to  remain  available. 

4.  Whether  it  is  to  be  revocable  or  irrevoc- 
able. 

5.  How  it  is  to  be  available. 

Number  One  requires  no  explanation,  since  it 
consists  merely  of  the  name  and  address  of  the 


•  These  standard  forms  have  been  published  by  the  American  Ac- 
ceptance Council  and  will  be  furnished  on  request  by  the  International 
Acceptance  Bank,  Inc. 

58 


Revocable  or 
Irrevocable 


beneficiary.  Nevertheless  many  credits  have  been 
delayed  because  this  name  was  mis-spelled  or 
slightly  incorrect  in  the  application. 

Number   Two    states   the    maximum    amount 
which  may  be  drawn  and  names  the  currency  in     Amount 
which  the  credit  is  to  be  established.  If  the  credit 
is  to  be  revolving,  that  is,  to  be  used  over  again 
several  times,  it  must  be  clearly  so  stated. 

Number  Three  determines  the  last  day  on  which 
drafts  may  be  drawn  and  negotiated.  The  expira-     Expiration 
tion  date  has  nothing  to  do  with  the  presenting  of 
drafts  for  payment  in  New  York,  which  may  take 
place  considerably  later. 

Number  Four  makes  the  credit  either  subject 
to  cancellation  by  the  party  which  has  opened  it 
(revocable) ,  or  expressly  waives  all  right  to  cancel 
or  in  any  way  amend  without  the  consent  of  the 
beneficiary  (irrevocable).  A  revocable  credit, 
moreover,  can  only  be  cancelled  for  such  portion 
as  has  not  been  availed  of  prior  to  actual  payment 
or  negotiation  of  draft  drawn  thereunder.  This  is 
a  matter  which  has  frequently  been  misunder- 
stood.* 

Number  Five,  however,  is  the  greatest  cause  of 
trouble  and  annoyance.  In  this  paragraph  the  im- 
porter instructs  the  bank  how  and  under  what 
terms  the  beneficiary  is  to  be  permitted  to  use  the 
credit.  In  the  first  place  he  states  whether  the 
drafts  are  to  be  drawn  at  sight,  or  some  other 
tenor.  Then  he  enumerates  what  documents  are 
in  each  case  to  accompany  the  drafts.  These  docu- 
ments usually  consist  of: 

a)  Invoices  for  a  stated  number  of  units 
(bales,  boxes,  pounds,  casks,  etc.)  of 
whatever  merchandise  is  to  be  shipped.  If 
the  clause  "10%  more  or  less"  is  added,  or 
the  words  "about,"  "approximately,"  etc., 
are  used,  a  certain  leeway  is  permitted. 

*A  confirmed  irrevocable  credit,  which  must  be  specially  requested, 
is  confirmed  to  the  beneficiary  by  the  bank  which  advises  the  credit, 
and  becomes  the  irrevocable  obligation  of  that  bank. 

59 


Drafts  and 
Documents 


I 


Importance 
of  Careful 
Instruction 


The  L/C 
Agreement 


The  merchandise  must  also  be  described  if 
invoices  are  to  evidence  a  certain  quality 

b)  Ocean  Bills  of  Lading.  It  must  be  clearly 
stated  whether  only  "On  Board  Steamer" 
^ills  are  to  be  accepted,  or  "Received  for 
Shipment"  Bills  as  well. 

c)  Insurance.  It  must  be  definitely  stated 
whether  policies  or  certificates  are  re- 
quired ;  and  what  sort  of  insurance  is  to  be 
provided  by  the  shipper  (unless  purchases 
are  on  a  C.  I.  F.  basis). 

d)  Consular  invoices,  where  required 

e)  Weight  certificates,  or  other  special  certi- 
ficates if  required. 

1^2.1  i°'*'""'=*'°"«  i'^  '•^^ard  to  invoices,  bills  of 
lading,  and  insurance  cannot  be  too  carefully  pre- 
pared. The  importer's  bank  will  pass  them  on  ex- 
actly as  received,  and  the  negotiating  bank  in  the 
foreign  country  will  comply  with  them  to  the  let- 
ter, or  else  make  itself  liable  for  wrong  negotiation. 

tSrT"^.™^"^^^  °^*«°  ^^  °«t  understand 
that   he  bank's  sole  duty  is  to  procure  the  docu- 

^r^^^^^^^^'  ^""^  *^**  "  *^«  documents  are  in 
be  b[am"i!''  ^"'^  ''"""'  *'^  ^'""^  ^°  ^°  -  -«" 
In  signing  the  acceptance  agreement  the  im- 
porter accepts  the  credit  as  issued  and  guarantees 
to  the  bank,  m  consideration  of  its  opening  the 
credit  as  requested,  v^i^^g  tne 

1.  That  he  will  provide  the  bank  with  funds 
before  maturity  of  the  acceptance,  or,-in 

drafts''"^'''*''"'"  *™^  *°  ™^^*  *^^  ^'«^^ 

2.  That  he  will  pay  whatever  commission  is 
agreed  upon  and  assume  the  cost  of  cable 
charges. 

3.  That  he  will  not  hold  the  bank  responsible 
lor  the  genuineness  or  validity  of  the 
documents  presented  under  the  credit,  or 
for  the  quantity  or  quality  of  the  mer- 
cnandise. 

60 


A  great  number  of  misunderstandings  arise 
from  the  fact  that,  under  clause  three  above- 
mentioned,  a  bank  will  accept  drafts  when  ac- 
companied by  proper  documents  and  insist  upon 
the  importer's  receiving  and  paying  for  them  even 
though  it  eventually  develops  that  the  quality  of 
the  merchandise  is  not  as  specified  in  the  invoice. 
The  importer,  who  is  naturally  put  out,  often  vents 
his  indignation,  not  on  the  shipper,  who  is  properly 
to  blame,  but  on  the  bank.  The  letter  of  credit  is 
entirely  independent  of  the  purchase  contract. 
It  remains  the  duty  of  the  buyer  to  satisfy  him- 
self as  to  the  standing  of  his  seller,  since  he  buys 
his  goods  at  his  own  risk. 

Vice  versa,  when  an  exporter  negotiates  drafts 
under  a  credit  opened  in  his  favor,  he  is  often 
annoyed  with  the  bank  for  insisting  on  full  com- 
pliance with  all  the  technical  details.  The  necessity 
for  absolute  observance  of  the  terms  of  the  credit 
is  obvious  from  the  fore-going  paragraphs. 

When  a  credit  specifies  bills  of  lading  to  order 
of  the  bank,  it  does  not  permit  of  bills-of-lading 
to  shipper's  order  and  endorsed  to  the  bank.  When 
insurance  policies  are  stipulated,  insurance  cer- 
tificates are  not  in  order.  Steamer  bills-of-lading 
are  on-board-bills,  or  received-for-shipment  bills, 
but  not  inland-through-bills.  One  hundred  tons, 
10%  more  or  less,  does  not  mean  that  112  tons 
will  be  accepted,  and  so  on.  Where  there  is  good 
reason  to  do  so  a  bank  may  at  its  discretion  waive 
a  minor  technicality,  but  it  will  only  do  this  on 
the  shipper's  guarantee  in  writing  to  hold  it  harm- 
less. More  often,  if  the  shipper  cannot  comply 
with  some  requirement  of  the  credit,  he  will  ask 
the  bank  to  cable  requesting  an  amendment. 

Amendments  to  irrevocable  credits  can  only  be 
made  with  the  consent  of  both  accreditor  and 
accreditee.  Revocable  credits  may  be  amended  by 
the  accreditor,  provided  the  accreditee  has  not 
already  negotiated. 

61 


Purchase 
Contract 
Distinct 
from  L/C 


Waiver  of 
Technicalities 


Amendments 


Collection 
Instructions 


Export 

Acceptance 

Agreement 


Under  export  acceptance  credits  there  is  pre- 
cisely the  same  need  for  accuracy  in  preparing 
instructions,  although  the  number  of  points  to 
be  covered  is  not  so  great.  Since  the  underlying 
collections  are  drafts  drawn  by  the  shipper  on  the 
purchaser,  the  matter  of  how  they  are  drawn  and 
what  documents  are  required  concerns  these  two 
parties  alone.  The  shipper,  however,  must  inform 
the  bank  whether  the  documents  are  to  be  re- 
leased against  acceptance  or  payment  in  part  or 
whole.  He  must  also  instruct  how  payment  is  to 
be  effected,  whether  by  check  or  cable,  and  if  by 
check,  what  checks  will  be  acceptable. 

By  the  terms  of  the  export  acceptance  agree- 
ment he  binds  himself,  as  with  an  import  credit, 
to  provide  cover  and  to  pay  commissions  and 
costs ;  in  addition  he  agrees  to  hold  the  bank  harm- 
less from  the  acts  of  its  collecting  agents  except 
in  cases  of  negligence  on  the  part  of  these  agents 
or  of  the  bank  itself  in  selecting  them.  If,  for 
instance,  a  foreign  correspondent  becomes  in- 
solvent while  funds  arising  out  of  collections  are 
in  its  hands,  the  American  bank  is  only  liable  for 
any  eventual  loss  sustained  by  its  customer,  if  it 
can  be  reasonably  maintained  that  the  American 
bank  should  have  been  aware  of  the  situation,  and 
was  negligent  in  using  the  foreign  bank  as  its 

agent. 

m     *     *     m 

We  have  mentioned  here  only  a  few  of  the 
many  possible  causes  of  annoyance  and  misunder- 
standing, our  purpose  being  not  to  provide  a  hand- 
book of  "Don'ts,"  but  to  point  out  the  necessity 
for  accuracy  and  complete  co-operation  on  the 
part  of  both  customer  and  bank.  It  is  not  over- 
stating the  case  to  say  that  punctiliousness  in 
giving  and  carrying  out  instructions  is  the  oil 
without  which  the  motor  knocks  and  the  gears 
grind. 


PART    FOUR 

The  International 
Acceptance  Bank,  Inc- 

BEFORE  concluding  our  birds-eye  consideration 
of  the  general  principles  of  foreign  trade 
financing,  we  shall  devote  a  brief  space  to  a  glance 
at  the  particular  services  offered  by  a  bank  which 
was  organized  for  the  specific  purpose  of  perform- 
ing this  function.  We  shall  outline  first  the  general 
organization  of  the  bank  and  the  various  kinds  of 
business  for  which  it  is  equipped.  Next  we  shall 
endeavor  to  show  how  this  organization  is  adapted 
to  the  needs  of  American  banks  and  commercial 
enterprises,  and  finally,  how  it  is  especially  de- 
signed to  serve  the  banks  and  commercial  houses 
of  foreign  countries. 


62 


»M 


CHAPTER    FIFTEEN 


The  Organization  of  the 
International  Acceptance  Bank 

THE  International  Acceptance  Bank,  Incorpo- 
rated, was  organized  in  April,  1921,  under  the 
laws  of  the  State  of  New  York  and  under  a  special 
license  from  the  Federal  Reserve  Board  of  the 
United  States.  It  has  an  authorized  capital,  fully 
paid  in,  of  $10,250,000,  and  a  surplus,  fully  sub- 
scribed of  $5,000,000.  On  December  31,  1921,  it 
showed  undivided  profits  of  $82,000.  On  Decem- 
ber 30,  1922,  it  showed  undivided  profits  of 
$969,500. 

Since  it  does  not  take  domestic  deposits,  it  is 
permitted  to  accept  up  to  a  total  amount  equal  to 
several  times  its  capital  and  surplus.*  On  De- 
cember 31,  1921,  it  had  acceptances  outstanding, 
of  $11,000,000.  On  December  30,  1922,  it  had 
$28,800,000. 

Inasmuch  as  a  majority  of  the  shareholders  of 
the  Bank  are  leading  banks  and  private  banking 
houses  in  the  United  States,  Europe  and  Canada, 
the  board  comprises  representatives, — ^in  most 
cases  the  chief  executives, — of  those  stock-hold- 
ing institutions  which  are  located  within  easy 
traveling  distance  of  New  York.  The  following 
are  the  officers  and  directors  of  the  Bank. 


Organisation 
and  Capital 


Acceptance 
Limit 


Officers  and 
Directors 


*  The  Federal  Reserve  Board  supervises  acceptance  corporations 
such  as  the  I.  A.  B.  and  determines  from  time  to  time  the  limits  up 
%o  which  they  may  accept. 

65 


OFFICERS 

F.  ABBOT  GOODHUE 

President 


L.  NACHMANN 

Vice-President 


P.  J.  VOGEL 

Vice-President 


JAMES  P.  WARBURG  FLETCHER  L.  GILL 

Vice-President  and  Secretary         Vice-President  and  Treasurer 

JOHN  E.  SHEA 
Aidditor 


Assistant  Secretaries 

A.  BENJAMIN 
H.  B.  KINGMAN 
W.  H.  SCHUBART 


Assistant  Treasurers 

JOHN  P.  COLLINS 
L.  D.  PICKERING 


E.  GUGELMANN,  Mgr.  Foreign  Exchange  Dept, 
H.  E.  BARKER,  Mgr.  Commercial  Credit  Dept. 
H.  J.  ROGERS,  Mgr.  CollecHon  Dept. 
W.  T.  KELLY,  Mgr.  Credit  Information  Dept. 


DIRECTORS 

Chairman 
PAUL  M.  WARBURG 


Vice-Chairman 
DANIEL  G.  WING 

President  First  National  Bank  of  Boston 

NEWCOMB  CARLTON 

President  Western  Union  Telegraph  Co.,  New  York 

EMORY  W.  CLARK 

President  First  National  Bank  in  Detroit 

WALTER  E.  FREW 
President  Corn  Exchange  Bank,  New  York 

F.  H.  GOFF 

President  Cleveland  Trust  Company,  Cleveland 


66 


F.  ABBOT  GOODHUE 

President 

ROBERT  F.  HERRICK 

Herrick,  Smith,  Donald  &  Farley,  Boston 

L.  NACHMANN 

Vice-President 

JOHN  T.  PRATT 
Financier 

LAWRENCE  H.  SHEARMAN 
W.  R.  Grace  &  Co.,  New  York 

WILLIAM  SKINNER 

William  Skinner  &  Sons,  New  York 

H.  C.  SONNE 
Huth  &  Co.,  New  York 

PHILIP  STOCKTON 
President  Old  Colony  Trust  Co.,  Boston 

CHARLES  A.  STONE 

President  American  International  Corporation 

HENRY  TATNALL 
Vice-President  Pennsylvania  Railroad  Co. 

FELIX  M.  WARBURG 
Kuhn,  Loeb  &  Co.,  New  York 

THOS.  H.  WEST,  Jr. 
President  Rhode  Island  Hospital  Trust  Co.,  Providence 


The  Bank  is  organized  to  handle  all  kinds  of 
financial  transactions  which  arise  out  of  the  com- 
merce between  one  nation  and  another,  as  well  as 
to  finance  certain  particular  kinds  of  domestic 
business,  which  involve  movements  of  merchan- 
dise. 


67 


ll 


I 


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i 


Commercial 
Credit  and 
Collection 
Departments 


Foreign 

Exchange 

Department 


Securities 
Department 


Information 
Department 


Bullion 
Department 


The  Commercial  Credit  and  Collection  Depart- 
ment is  prepared  to  open  import  letters  of  credit 
in  all  parts  of  the  world,  either  in  dollars  or  in 
foreign  currencies;  It  is  equipped  to  handle  for- 
eign collections  and  open  export  acceptance  cred- 
its; to  open  dollar  exchange  credits  where  per- 
mitted ;  and  in  certain  cases,  it  is  prepared  to  open 
credits  against  domestic  shipments  or  staple  com- 
modities in  warehouse. 

The  Foreign  Exchange  Department  maintains 
its  accounts  in  all  the  principal  countries  of  the 
world,  and  is  equipped  with  a  cable  relay  station 
in  London,  as  well  as  with  private  wire  connections 
to  Canada  and  thirty  of  the  principal  cities  of  the 
United  States.  It  is  therefore  admirably  equipped 
to  execute  cable  transfers,  to  buy  or  sell  checks  in 
any  of  the  foreign  currencies,  or  to  purchase  long- 
dated foreign  currency  bills.  This  department  does 
not  issue  drawing  equipments,  nor  undertake  to 
handle  small  remittances ;  it  is  organized  primarily 
to  do  a  wholesale  business  on  a  minimum  margin 
of  profit. 

The  Securities  Department  is  equipped  to  buy 
or  sell  in  all  markets,  or  to  obtain  information 
concerning  any  domestic  or  foreign  investments. 
In  conjunction  with  affiliated  interests  the  Bank  is 
also  prepared  to  negotiate  new  issues,  domestic  or 
foreign. 

The  Information  Department  has  extensive  files 
on  domestic  and  foreign  concerns,  and  is  always 
ready  to  procure  any  confidential  information  for 
clients  of  the  bank. 

The  Bullion  Department  deals  extensively  in 
gold  and  silver  and  is  equipped  to  handle  sales  or 
purchases  for  the  account  of  foreign  and  domestic 
customers. 

These,  in  bare  outline,  are  the  departments  of 
the  Bank.  The  working  staff  of  these  departments 
is  comparatively  small  and  highly  specialized. 


68 


* 


CHAPTER    SIXTEEN 

Particular  Facilities  for  Domestic 

Clients 

BY  reason  of  its  extensive  foreign  connections, 
the  International  Acceptance  Bank  is  partic- 
ularly adapted  for  handling  the  foreign  business 
of  domestic  corporations. 

Instead  of  establishing  branches  abroad,  the 
policy  of  the  International  Acceptance  Bank  has 
been  to  obtain  as  stockholders  some  of  the  oldest 
and  best  banks  and  banking  firms  in  Europe  and 
Canada,  and  thus  to  secure  the  benefit  of  their 
support  and  co-operation  through  the  creation  of 
a  community  of  interest.  This  plan  not  only  avoids 
the  expense,  risk  and  responsibility  of  operating 
branches  in  distant  countries,  but  opens  to  the 
Bank  a  wider  and  safer  avenue  to  foreign  fields 
than  could  be  obtained  in  any  other  way.  Further- 
more it  provides  the  great  benefit  of  information 
and  advice  from  these  stockholding  correspond- 
ents, which,  in  times  as  uncertain  as  the  present, 
is  invaluable,  not  only  to  the  bank  but  to  its  cus- 
tomers and  associates. 

The  foreign  stockholding  corporations  of  the 
International  Acceptance  Bank  have  an  aggregate 
capital  and  surplus  in  excess  of  $270,000,000  and 
resources  of  approximately  $2,300,000,000.  Some 
of  the  principal  stockholders  in  various  countries 
are  the  following: 

ARGENTINE 
The  First  National  Bank  of  Boston,  Buenos  Aires 

BELGIUM 
Banque  Centrale  Anversoise,  Antwerp 


Banque  de  Bruxelles,  Brussels 

69 


Stockholders 
Instead  of 
Branches 


Foreign 

Bank 

Shareholders 


I 


I 


CANADA 

Bank  of  Montreal,  Montreal 

With  246  branches  in  trade  centers  of  Canada, 
Newfoundland,  Mexico,  Europe  and  the  U.  S. 

DENMARK 
R.  Henriques,  Jr.,  Copenhagen 

FRANCE 

Banque  de  Paris  et  des  Pays  Bas,  Paris 

With  branches  in  Amsterdam,  Brussels, 

Geneva  and  Rotterdam 

GERMANY 
M.  M.  Warburg  &  Company,  Hamburg 

GREAT  BRITAIN 
N.  M.  Rothschild  &  Sons,  London 


National  Provincial  &  Union  Bank  of 
England,  Ltd.,  London 
With  over  1,000  branches  in  all  the  leading  com- 
mercial  cities  of  the  United  Kingdom  and  with 
affiliated  institutions  having  offices  and  branches 
in  Belgium,  France,  Italy,  Switzerland,  Germany, 
India,  and  the  Far  East 

NETHERLANDS 
Hope  &  Company,  Amsterdam 


Nederlandsche  Handel-Maatschappij,  Amsterdam, 

The  Hague,  Rotterdam 

Foreign  branches  in  the  following  places: 

Dutch  East  Indies:   Batavia,  Sourabaya,   Sama- 

rang,  Medan,  Weltevreden,  Bandoeng,  Cheribon, 

Tegal,  Pecalongan,  Djokjakarta,  Solo,  Tjilatjap. 

Djember,  Padang,  Kota-Radja,  Palembang, 

Bandjermasin,  Pontianak,  Mascassar. 

Straits  Settlements:  Singapore,  Penang. 

70 


V 


V 


British  India:  Rangoon,  Calcutta,  Bombay. 

China:  Hongkong,  Shanghai. 

Japan:  Kobe. 

Dutch  Guiana:    Surinam 

NORWAY 
Den  norske  Creditbank,  Christiania. 

SWEDEN 

Skandinaviska  Kreditaktiebolaget 
Gothenburg — Stockholm — ^Malmo 

With  109  branches  in  Sweden 


Svenska  Handelsbanken,  Stockholm, 
With  228  branches  in  Sweden 

SWITZERLAND 

Swiss  Bank  Corporation,  Basle 

With  branches  in  London,  Zurich,  St.  Gall,  Geneva, 
Lausanne,  La  Chaux-de-Fonds,  Neuchatel,  Schaff- 
house,  Bienne,  Chiasso,  Herisau,  Le  Locle,  Nyon, 
Aigle,  Bischofszell,  Morges,  Rorschach,  Vallorbe, 

Les  Ponts,  Rolle. 


Credit  Suisse,  Zurich 

With  branches  in  Basle,  Berne,  Frauenf  eld,  Geneva, 

Claris,  Lausanne,  Kreuzlingen,  Lucerne,  Lugano, 

Neuchatel,  St.  Gall,  Horgen,  Oerlikon, 

Romanshorn,  Weinfelden. 


In  addition  to  these  stockholding  banks  which 
form  the  nucleus  of  the  foreign  connections  of  the 
International  Acceptance  Bank,  Inc.,  other  corres- 
pondents are  located  in  all  the  principal  cities  of 
Europe,  Central  and  South  America,  Australia 
and  New  Zealand,  China,  Japan,  India,  and  Africa. 

71 


Additional 
Correspondents 


special 

Advantages 


Treuhand 
Companies 


The  exceptional  character  of  the  facilities  of- 
fered for  opening  import  credits  in  dollars  or  for- 
eign currencies,  or  for  collecting  drafts  drawn  on 
all  parts  of  the  world,  is  evident  without  further 
comment.  Furthermore  it  will  readily  be  seen  that 
operations  in  foreign  exchange  in  all  countries  are 
enormously  facilitated  by  the  intimate  relations 
existing  between  the  International  Acceptance 
Bank  and  its  foreign  stockholders. 

Similarly,  the  bank  is  provided  with  the  means 
whereby  it  can  not  only  obtain  information  in 
regard  to  investment  securities,  which  are  dealt 
in  in  various  markets  of  the  world,  but  also  exe- 
cute under  most  favorable  circumstances  orders 
to  buy  and  sell  such  securities,  which  it  may  re- 
ceive from  its  domestic  customers. 

The  salient  feature  about  this  bank  in  so  far  as 
the  domestic  client  is  concerned,  is  that  the  client 
has  at  his  disposal,  not  only  the  facilities  of  the 
bank  itself,  but  of  the  leading  banks  in  the  foreign 
countries  of  the  world. 


The  International  Acceptance  Bank  acts  as 
agent  in  obtaining  for  American  banks  and  com- 
mercial houses  the  services  of  the  Deutsche 
Waren  Treuhand  A.  G.  of  Hamburg,  and  of  the 
Allgemeine  Waren  Treuhand  A.  G.  of  Vienna. 

These  two  companies  were  formed  some  time 
ago  for  the  specific  purpose  of  safeguarding  cred- 
its extended  by  American  enterprises  to  various 
concerns  in  Central  Europe.  They  are  equipped, 
not  only  to  attend  to  the  warehousing  and  insur- 
ance of  goods, — as  well  as  to  handle  collateral  of 
all  sorts  as  trustee, — ^but  also  to  look  after  the 
preserving  of  liens  on  raw  materials  during  the 
process  of  manufacture. 


/ 


/ 


\ 


/ 


CHAPTER    SEVENTEEN 

Services  to  Foreign  Customers 

TUST  as  the  International  Acceptance  Bank  was 
J  organized  to  place  at  the  disposal  of  its  Ameri- 
can customers  the  services  of  the  leading  foreign 
banks,  so  also  it  was  designed  to  provide  for  its 
friends  in  foreign  countries  a  means  whereby  they 
could  avail  themselves  of  the  cumulative  facilities 
of  a  group  composed  of  dominant  banks  and  pri- 
vate banking  and  commercial  houses  in  this  coun- 
try. The  combined  capital  and  surplus  of  the 
American  stock-holding  corporations,  exclusive  of 
private  firms,  is  approximately  $276,000,000  and 
their  total  resources  aggregate  in  excess  of 
$2,200,000,000. 

The  following  is  a  list  of  the  principal  stock- 
holding banks  and  firms  in  the  United  States : 


BIRMINGHAM,  ALABAMA 
First  National  Bank  of  Birmingham 

BOSTON,  MASSACHUSETTS 

The  First  National  Bank  of  Boston 

Old  Colony  Trust  Company 

CHICAGO,  ILLINOIS 
The  First  National  Bank  of  Chicago 

CLEVELAND,  OHIO 

Central  National  Bank  Savings  &  Trust  Co. 

The  Cleveland  Trust  Company 

DETROIT,  MICHIGAN 
First  National  Bank  in  Detroit 


Network  of 
Domestic 
Bank 
Stockholders 


72 


73 


I 
I 


Private 
Wires 


KANSAS  CITY,  MISSOURI 

Fidelity  National  Bank  &  Trust  Co. 

LOS  ANGELES,  CALIFORNIA 
The  First  National  Bank  of  Los  Angeles 

MINNEAPOLIS,  MINNESOTA 
Northwestern  National  Bank 


NEW  YORK,  NEW  YORK 

American  International  Corporation 

Com  Exchange  Bank 

Huth  &  Company 

Kuhn,  Loeb  &  Company 

The  New  York  Trust  Company 


PHILADELPHIA,  PENNSYLVANIA 
Franklin  National  Bank 


PORTLAND,  OREGON 
The  First  National  Bank  of  Portland 

PROVIDENCE,  RHODE  ISLAND 
Rhode  Island  Hospital  Trust  Co. 

SAN  FRANCISCO,  CALIFORNIA 
Wells  Fargo  Nevada  National  Bank 

SEATTLE,  WASHINGTON 
Seattle  National  Bank 

ST.  LOUIS,  MISSOURI 
First  National  Bank  in  St.  Louis 

YOUNGSTOWN,  OHIO 
The  First  National  Bank 


With  the  majority  of  these  institutions,  as  well 
as  with  a  large  number  of  other  correspondents  in 
the  United  States  and  Canada,  the  International 
Acceptance  Bank  is  connected  by  private  telegraph 
or  telephone  wires,  which  is  of  particular  value  in 
foreign  exchange  dealings.  Furthermore,  a  relay 

74 


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t 


station  is  maintained  in  London  for  the  particular 
service  of  European  clients. 

The  International  Acceptance  Bank  makes  a 
specialty  of  serving  foreign  banks  in  caring  for 
their  current  business  of  all  sorts  in  this  country. 

1.  It  will  carry  accounts  current  on  its  books 
and  grant  what  facilities  are  needed  in 
connection  therewith. 

2.  It  will  make  or  receive  payments  in  all 
parts  of  the  country. 

3.  It  will  attend  to  collections  and  discount 
bills  forwarded  for  acceptance. 

4.  It  will  execute  orders  in  all  foreign  ex- 
changes, valeur  compensee. 

5.  It  will  grant  reimbursement  credit  facilities 
up  to  a  maximum  tenor  of  six  months. 

6.  It  will  make  cash  advances  and  extend  mail 
credits. 

7.  It  will  accept  drafts  drawn  upon  it  to  create 
dollar  exchange,  wherever  it  is  permitted. 

8.  It  will  execute  purchases  and  sales  of  se- 
curities on  any  of  the  American  stock  ex- 
changes. 

9.  It  will  buy  or  sell  Bank  or  Trade  Accep- 
tances for  investment  under  its  guarantee. 

10.  It  will  attend  to  purchases  or  sales  of  gold 
and  silver  bullion. 

11.  It  will  provide  information  of  all  sorts,  and 
particularly  credit  information. 

12.  It  will  act  as  intermediary  in  financial  ne- 
gotiations. 

The  Bank  is  also  glad  to  serve  foreign  corpora- 
tions, firms,  or  individuals  in  much  the  same  man- 
ner, and  makes  a  specialty  of  safe-guarding  the 
American  holdings  of  such  clients.  Furthermore 
it  is  willing  to  assist  the  business  man  in  foreign 
countries  to  establish  suitable  connections  here, 
just  as  it  serves  the  American  enterprise  to  find 
its  affiliations  abroad. 

75 


Service  to 

Foreign 

Banks 


Service  to 
Foreign  Indi- 
viduals and 
Corporations 


INDEX 


A 

Acceptances  (See  Bank  and  Trade  Acceptances) 

Acceptance  Powers  of  National  Banks 15 

Allgemeine  Waren  Treuhand  A/G 72 

American  Credit  Structure  (See  "Credit  Structure") 12 

Automobiles    *'' 

Bank  Acceptances  B 

Abuses    ^ 

Against   Cotton 40 

Domestic  Credits 32 

For  Creation  of  Dollar  Exchange 85 

Evolution  11 

Export  Acceptance  Agreement 62 

Export  Acceptance  Credits 28 

Forms,  and  Uses  of 21 

As  Applied  to  Grain  and  Foodstuff  Transactions 37 

As  Investments 17-67 

Liquidity    17 

Against    Miscellaneous   Raw   Materials   and   Manufactured 

Goods    47 

Powers  of  National  Banks,  Widening  of  the  Power 15-16 

Uses  in  Other  Countries H 

Security   17 

Balance  Sheets 

Customers' 52 

Invisible  Figures 53 

Business  of  Customers 

(See  Customers'  Business) 52 

C 

Cash   Discount 12 

China  Hides 45 

Coffee    39 

Collection  Instructions  Under  Letters  of  Credit 62 

Commodity 

Risks  55 

Cotton   40 

Export  Credits 41 

Imports 41 

Credits  (See  "Export,"  "Import,"  and  "Domestic"  Credits) 

Lines   54-56 

Credit  Structure 

American  12 

Development  of  in  Foreign  Countries 11 

Following  Civil  War 12 

Money  Rates 14 


! 


I 


f 


I 


Customers'  Balance  Sheets 52 

Capital    52 

Invisible  Figures 53 

Customers'  Business 

Analysis  54 

Credit  Line 54 

Character  of 54 

Commodity  Risks 55 

Financing  Purchases 56 

Financing  Sales 56 

D 

Del  Credere 29 

Deutsche  Waren-Treuhand  A/G 72 

Direct  Drawing 28 

Discount  of  Dollar  Drafts 29 

Discount  Market 

Creation  of 14 

Dollar  Exchange,  Acceptances  for  Creation  of 35 

Domestic  Acceptance  Credits 32 

Export  Acceptance  Credits  E 

Advantages   31 

Export  Acceptance  Agreement 62 

Operation  of 30 

Security  Margin 31 

Exports 

Automobiles    47 

Export  Cotton  Credits 41 

Grain  and  Foodstuff  Ebcport  Statistics 37 

Manufactured   Goods 47 

Under  Bank  Credits 28 

Federal  Reserve  Act  F 

Acceptance  Powers 14-16 

Creating  Discount  Market 14 

Policy  of  Board 16 

Foodstuffs  and  Grain 37 

6 

Grain  and  Foodstuffs 37 

Export  Statistics 37 

Export  Credits 38 

Meats    38 

Sugar,  etc 38 

Hides  and  Skins 44 

China  Hides 45 

Financing 44-45 

Frigorificos   45 

Imports 44 

Sheepskins 45 

Sources  for  Sole  Leather 44 

Trust  Receipt  Releases " 45 


I 


I 

Import  Credits 23 

Buyers  Arrangements ]  24 

Clean  Import  Credits 27 

Commissions  * "  25 

Custody  of  Goods 24 

Foreign  Currency  Payments [[[  27 

Functions  of * '  *  23 

Other  Costs ','.'"  26 

Refinancing  26 

Seller's  Negotiation .  23 

Sight  Dollar  Credits ...............[  26 

Sight  and  Time  Credits 24 

Substitutions 25 

Trust  Receipts 25 

Irrevocable  Letters  of  Credit 59 

International  Acceptance  Bank,  Inc. 

Acceptance   Limit gr 

Bullion  Department ]  gg 

Capital    gg 

Collection  Department gg 

Commercial  Credit  Department i . '  gg 

Foreign  Exchange  Department gg 

Functions  g« 

Information   Department gg 

OflScers  and  Directors 65-67 

Organization gg 

Private  Wires 74 

Services 

To  Foreign  Banks 73-75 

To  Foreign  Individuals  and  Corporations 75 

Special   Advantages Y2 

Statement    ^  o 

Stockholding  Banks,  Domestic !73-75 

Stockholding  Banks,  Foreign 69-71 

Unique  Organization gg 

Legal  Restrictions  L 

On  Dollar  Exchange  Drafts 35 

Letters  of  Credit 

Collection  Instructions g2 

Amendments    g  ^ 

Agreement qq 

Amount    go 

Beneficiary    ' "  gg 

Distinction  of  Purchase  Contract ]...  gi 

Drafts  and  Documents ]  59 

Exportation '  gg 

Import  Application gg 

Revocable go 

Standardized  Forms gg 

Waivers 61 


1^ 


Money  Rates  M 

Regulation  of 14 

Meats 38 

Metals  46 

Manufactured  Goods,  Exports  of 46-48 

National  Banks  N 

Acceptance  Investment  Limitations  of 18 

National  Bank  Act 13 

Nuts 39 

Open  Account  O 

Versus  Trade  Acceptance 10 

Overdrafts 

European  Practice 18 

Origin  of  Acceptance  Banking 9 

P 

Purchase  Contracts 61 

Raw  Materials  ^ 

Manifold  Use  of  Acceptance  Credits  for 46 

Relation  of  Bank  to  Customer 49 

Revocable  Letters  of  Credit 59 

Rice    39 

S 

Sale  of  Foreign  Exchange  Drafts 29 

Single  Name  Notes 

American  and  European 13 

Silk    43 

Sheepskins  45 

Straight  Collections 29 

Sugar 38 

Trade  Acceptances  T 

Definition 9 

Comparison  with  Open  Account 10 

Versus  Open  Account 10 

Trust  Receipts 

Against  Hides  and  Skins 45 

Against  Wool 42 

Technical   Pitfalls 58 

Two  Name  Paper 10 

U 

U.  S.  Imports  and  Exports 40 

Warehoused  Staples  W 

Acceptance  Credits  Against 33 

Wool 

Domestic  Crop 41 

Foreign  Wool  Import  Financing 42 

Trust  Receipts — Dangers 42 


Date  Due 


* 


%VMi 


XD725-QI       ^v^v. 

International  acceptance  bank  I 
Acceptance  financing 

H^  06m 


£?*'- 


FEB  28  1995 


I 


END  OF 
TITLE 


